Fund Balances and Asset Accounts

Hello ACCOUNTS program advisors. I’m having a discussion with a new user, who is switching to ACCOUNTS from the program Aplos. Aplos does one thing that ACCOUNTS does not do, which is track which amounts in each asset account (like a bank account or investment account) belongs to each fund. The user is having trouble seeing how he can do without that feature, seeing as how ACCOUNTS does not do that at all.

To be clear, this is a situation where the user does not have separate bank accounts for each fund. I know some of you may do that, but as I have discussed with some of you before, I see no real need for that.

My view is that in ACCOUNTS, you know two relevant things: how much total is in each asset account, and what each fund’s current (implicit) balance is. As you may recall, what we call the implicit balance is what shows up as the current fund balance on a Balance Sheet, or Fund Income Statement.

The user is concerned about having an expense that needs to come from a fund, that might exceed the amount of money in that fund in his bank account, even though there is enough in an investment amount to cover it. However, the bank account total is sufficient for the expense.

My argument is, it just doesn’t matter. In my not so humble opinion, there are only two questions to be asked (relevant to the accounting, at least) about an upcoming approved expense that will be from a specific fund. First, is there enough in that fund’s balance. Second, is there enough cash on hand in the bank.

If there’s not enough in the fund balance, you either can’t spend the money, or you put the fund into a negative balance, or you get approval for an inter-fund transfer (which may not require actually moving any money around in bank accounts, unless you keep separate bank accounts for each fund) to cover it.

If there’s not enough in the cash on hand in the bank, you need to cash in some investments (or wait for them to come due so their funds are available), get that money into the bank, and then you will have enough.

But I just can’t see how any questions of which funds’ income made up the current bank and investment account balances needs to come into this (or any other) question.

Can any of you think of anything I’m missing here, or alternatively back me up from your experience? Thank you in advance for any comments.

11 thoughts on “Fund Balances and Asset Accounts

  1. Hey Dan,

    Tim Goetz from Aplos here. First off, let me say – if this customer ends up making the switch, let me know if there is anything we can do from our end to ensure a smooth transition for them. I’d be sad to see a customer go, but you offer a different product than we do and if that is what the customer needs, then I’d like to see them land on their feet.

    Regarding the question you posted above:
    The real issue is in the details of Fund Accounting. Consider this example… A church owns a building worth $1M sitting in the Building Fund and has $10,000 sitting in a checking account associated with the Building Fund… making the Fund Balance of the Building Fund $1,010,000. Now, lets say they also have $250,000 in the checking account with the General Fund. Under your assumption above, if the church needs to do renovations to the Building that cost $100,000, they should be ok to do so… they have enough cash and they have adequate equity. But, they really shouldn’t do the renovation.. they’d be using General Fund cash to do it. There is a third question that should be asked — Do I have enough in that specific asset account?
    The same example above could exist using an investment (that can not be sold at this time, such as land) rather than a building.

    Let me know if you’d like to discuss further.

    Hope this helps.


    • Actually, this can be solved in ACCOUNTS with sub-fund accounts. You would have a Building Fund, with sub-accounts Building Fund Capital and Building Fund Cash (or something like that), and would set up their associated income and expense accounts to make it clear that they could only spend money from the Building Fund Cash fund.

      By the way, Tim, I do recall that you were kind enough to have a long email discussion about this with me before, and I think we sort of left it at the “agree to disagree” stage. There are over 500 registered users of ACCOUNTS now, and they all seem to be doing fine without being able to identify which parts of their asset accounts belong to which fund. I do very much appreciate your contributing to this discussion!

  2. Hi Dan

    I`m totally with you on this one. There should be no need to distinguish.

    In an ideal world a fund never gets into negative territory, but we all know this isn`t a perfect world. However, as long as there are assets to cover the funds, there is no issue, providing the treasurer is keeping his/her finger on the pulse of the cash flow and fund balances. If this isn`t happening, money can and will still get spent without regard to balances in individual funds.

    believe . . .


  3. The challenge for a small group like ours is that we need to know which account to use for spending the money. So if some of the money is in a chequing account and some of it in a savings account, we need to know how much to transfer to the chequing account to pay the bill. We don’t maintain separate savings accounts for each fund as the balance might be lower than the minimum to receive decent interest.
    The second post above from Dan Cooperstock addresses this in a way. For organizations that don’t have professional accounting help simple is always best though. I still maintain a separate spread sheet showing where the money actually is.

    • Joanne, I’m not sure I understand your point in your first paragraph. I agree of course that you may need to transfer from savings to chequing in order to pay a bill, but don’t see why that has any connection to knowing how the current chequing balance and the current savings balance are split up between the various funds.

      • We have one restricted fund (endowment in GIC’s) and three unrestricted (building, outreach, and endowment) where the money for each is kept in a single high interest savings account. Each of these funds has small balances so it is in our best interest to keep the money combined in the high interest savings. However, if we need to use money from the building fund, I still need to know how much I can take out of the savings account as some money for the building fund is kept in the chequing account. We probably could just be sure to keep all monies for the building fund in the savings account. The reason for knowing which account to ‘tap’ is to keep the balance in the high interest account above a certain level.

  4. Dan, I think I will agree with you.
    First, I only deal with our endowments. The Church has other funds and accounts managed by other folks. I manage three Funds, one bank account and one investment account for all Funds. I use a spreadsheet to determine the distribution of income for each Fund based on Fund principal and them make appropriate entries in Accounts. When it comes to expenditures, If the money is not available for spending from a specific Fund according to “the books” you don’t spend it. If the local bank account doesn’t have sufficient funds to cover a particular transaction, then as you said a transfer is in order, otherwise it doesn’t matter as long as the correct entries are made in Accounts.


  5. Dan, I agree with you in that it is not necessary for the checking accounts to equal fund balances. The object of checking (or investment) accounts is to let you know how much of your liquid assets are available. The fund balances are to let you know which fund has money available.

    The two are not required to be compatible. Funds can go negative. Cash accounts cannot.

    For example, just this December, our Faith Mission Committee needed to put down a deposit for a missions trip to Burkino Faso scheduled for mid-2015 in order to get good plane fares. We have plenty of cash on-hand and the trip participants have not had time to send out the letters asking for help with their trip expenses yet. Therefore, the Faith Missions Committee decided to go ahead and pay the deposit from our Fund (33423 Mission Trip #3 – Burkino Faso) even though there were no funds in the account. This action meant that the 33423 Fund Balance at the end of 2014 is negative. However, the Faith Mission committee is more than confident that the money will come in during 2015 to cover this expense item and all the others that will be made in 2015 and the fund balance will be positive (or zero at worst) at the end of 2015.

    Neal Carter, Church of the Open Door

    • Thanks, Neal. However, what you are writing about isn’t quite what I was wondering about, which is whether there is any potential benefit to knowing how the money in your asset accounts (such as a bank) is split up between the different funds.

  6. Hi Dan
    From my vantage point there are three issues at stake. 1) financial accounting, 2) management accounting, and 3) budgeting. Somewhere there is an expectation of being able to do all three with one application – and Aplos is purportedly trying to do that. From a financial accounting perspective ACCOUNTS does the job and has the capability to create sub-accounts to satisfy the equation as far as available funds are concerned. The challenge comes with the application of strict guidelines as to what the organization agrees it can or cannot be done with certain funds – I call them RESTRICTED funds. These are management (accounting and cash flow) decisions and not really historical / financial accounting decisions.

    Look at the example where someone donates a somewhat modest amount to the church “Musical Instrument Fund” hoping there will eventually be enough to buy a very expensive pipe organ. Perhaps there is a situation where the church doesn’t even have a space to put the organ – so church expansion needs for accommodating the expensive organ have yet to be dealt with as well. The donor and the church administration agree that the ‘organ funds’ will only be used for buying an organ. This means the funds are NOT available to patch the roof or pay for filling parking lot potholes or to fund a cathedral roof over the sanctuary for an organ pipe rack. In your argument, there is possibly sufficient cash to do one or more these other things from a financial accounting perspective but not from the point of view of one faced with managing the projects or associated funds.

    I had a situation where someone donated a significant sum of money to hire and support a youth worker. The donation was almost large enough to endow the position into perpetuity. A few years later, the position wasn’t yet filled. It was decided that a new building was needed to create the environment where a Youth Worker could be attracted and be effective. Hence a decision (totally separate from the youth worker fund) was made to build a new building. The Youth Worker Fund was, in essence, a restricted fund but that was never stated in a policy format. The YW funds were simply put into Guaranteed Investment Certificates and rolled over. When a church volunteer serving as treasurer unilaterally and without consultation took the money from the YW Fund (ie GIC’s) for the building project purposes there was a whole lot of explaining to do to the Youth Fund donor. You can imagine the number of people who had to own up to the error in judgement by the treasurer.

    I think (having never seen the software) what Aplos might be trying to do is to manage all the various fund categories as separate restricted funds – so as to minimize the number of red faces. We have all experienced that volunteers in volunteer organizations have very short memories for a host of reasons. Restricted funds serve to lengthen those memories – “Why did we set up the fund?”. Restricted funds are really a management accounting issue, not a financial accounting issue per se.

    Our church now places restricted funds of a long-term nature in separate bank/investment accounts so that there is a firm and clear and transparent connection between project revenue and expense versus general revenue and expense. Clearly, from a Revenue Canada / Charities Directorate point of view, a donor cannot give money for a restricted purpose of a charity (and get a CRA sanctioned receipt) but from an ethical point of view, the charity should be doing their best to match their donors with a specific (preferably immediate or short term) need of the organization rather than create a massive number of restrictive funds for ‘wishful thinking’ type of projects. Many Hospital charities, in my opinion, are good at doing this. They get a donor to fund a complete project and have project values ranging in the low, mid and high 6 or 7 or 8 figures categories – in order that the charity’s hands are not tied for an extended period of time and in order that the donor has choices to meet his donation budget.

    Neal’s travel project is an interesting case in point. The same could be said for school’s who offer travel education opportunities during spring break or other times. The funds collected in this unique situation should be placed in “restricted funds” to prevent them from being mixed with “donated funds” or other general revenue funds because a) there is a legal / moral obligation to expend the funds in a certain manner AND b) from a CRA point of view no tax receipts are permitted to be issued by a charity when funds are for the personal use of a member. Separating non-eligible revenues (for tax purposes) from eligible revenues can be a saving grace in the event of a CRA audit of the organizations accounts. This is a prudent management decision – that of preserving the organizations charitable status.

    There is another element in Neal’s discussion – common to most church organizations – FAITH that funds will eventually come in to cover the expense(s). Decision making based on FAITH is quite different from decision making based on applied business management techniques.

    Tim – from Aplos – in his example of the ‘building fund’ is, in my opinion, flawed from a cash-flow management perspective. Buildings, land, office furniture, etc. are indeed assets and can be reported in financial statements at the lower of cost or net realizable value – depending on which accounting standards the profession has adopted at the time. I’m not sure that from a fund accounting perspective the value of non-cash assets helps an organization greatly. Consider the church that sits in a prime downtown location. The land value might be large but converting that value to cash only helps the organization at a time of disposition. A not-for-profit might be able to borrow money against these assets to use for non-capital asset purposes or for acquiring other capital assets but this comes down to management decisions, not financial reporting considerations.

    So what are we trying to solve / resolve for your new ACCOUNTS client? Are we attempting to describe a solution to his financial accounting needs or describe solutions to his Management Accounting issues – or both? In the final analysis ACCOUNTS should , in my opinion, remain a financial accounting package and not attempt to address every possible management accounting decision. A seasoned accountant will be able to advise the user of ACCOUNTS how to track restricted activities and accounts using the existing Sub-account structures already provided.


    • Thanks for these detailed thoughts, Gord. I think at least part of your concerns could be resolved by grouping funds under top-level heading fund accounts like Restricted Funds and Unrestricted Funds. Using income and expense account names for the funds under them that reflect the restricted / unrestricted nature of the funds might also be helpful.

      The original user’s concern that prompted this was knowing that his bank account was composed of (say) $X for the General Fund and $Y for the Projects Fund, and that his GIC/Investment account was composed of $Z for the General Fund and $W for the Projects Fund. He did not feel that he should be able to spend over $Y immediately on Projects, since he did not have that much cash in hand in the bank that belonged to that fund. I do not believe this was a case of restricted funds, just that they had chosen to invest some of the money in GICs for a while to get more interest. In my not so humble opinion, in a case like that, which account the money is in really doesn’t matter, and as long as the total Projects Fund balance was sufficient, and the bank balance was sufficient, he should be able to make the expenditure.

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