How to allocate donation or payment to special account

I am doing simple Receipts and Payments accounts for UK charity. Donations given to a charity may be part of “Unrestricted funds” or “Restricted funds” (when the giver specifies what it has to be spent on). Special accounts look like just the thing to keep a record of Restricted funds. But if so, when money is received as a donation, I want to record it as a Donation. How does it get allocated to a special account (which seems to be a choice in the same list)? And when some money is spent for that purpose, how does the payment reduce the amount in the special account?

You just allocate it to the special account when entering the payment or receipt.

You can not allocate it to two accounts at the same time

if you want to track donations and expenditures to projects, then Tracking codes may be the way to go

If you want to record the balance of the funds, then special accounts are they way to go but you can’t have both

Thank you Joe91. Not being able being able to allocate a payment to two accounts is the problem. A donation is a payment, and we want to record donations. But the “Restricted funds” issue covers big donations. So perhaps special accounts are not right for this after all.

You allocate Unrestricted funds to a single account
You allocate Restricted funds to another single account or perhaps one of a range of accounts depending on the particular restrictions.

You then configure Manager to calculate and display the total of all donation accounts via your chart of accounts design and / or special accounts.

When spending funds you utilize the appropriate account depending on funds available, the purpose the funds are being used for, and the donation restrictions.

A change to Manager was just added that allows you to rename the Equity group. This was introduced specifically to accommodate charitable organization accounting, where such accounts are often called Net assets. That is where you would create your Restricted funds and Unrestricted funds accounts.

Accounting for non-profit entities is quite a bit different than for profit-making entities. The same principles apply, but reporting can be very different, depending on local regulations. Manager can handle non-profit accounting, but you will be using various reports in non-standard ways and will encounter differences in terminology that must be overcome with creative naming of accounts and reports. I encourage you to consult an accountant specializing in non-profit accounting in your jurisdiction. I believe you will discover there is no such thing as “simple Receipts and Payments accounts” that keeps you in compliance with your laws.

Thank you for your comments Tut. It has been a learning experience, but I did manage to produce accounts for the first year in Excel. They have been reviewed by an accountant as independent examiner. I have enjoyed learning to how to work with Manager, which is inherently better structured than my Excel sheets. Obviously it can do lots of things our charity does not need, but since it is logical, you feel there must be a way to do what we want to do, if one just understood the logic.

Thanks for the suggestion Patch. I shall look into it.

Yes, if those funds come with restriction conditions.
With restricted funds, these are monies held on trust on behalf of the specific purpose, they aren’t income / revenue of the charity as they can’t be used to pay charity expenses.

Restricted funds is in another words - project based funding - therefore they are a Balance Sheet item, they aren’t Profit & Loss donations as such

The problem with putting restricted funds to the profit and loss is the distortion in reporting.
When you receive the funds the charity income (net earnings) would be overstated, and not corrected until the expenditure has occurred. If that expenditure occurred over a year end balance day then two year sets of accounts are incorrect. By putting the restricted funds to a special account, this eliminates this reporting timing issues - besides the funds belong to the project and not the charity.

Thank you for these insights Brucanna. They are very helpful.

I noted that Receipts allocated to a special account did not appear as income, and could not work out what it meant. On this basis only one of five special accounts that I created really is a Restricted Fund. It is money being collected to fund something at an educational organisation. The others covered four large (by our standards) donations to support particular aspects of the charity’s work, and the money is meant to be used on the charity’s normal activities, over one or two years. I had thought of creating Receipts accounts for each of the four e.g. Donation for website (as opposed to general Donations).

As for the definite Special Account, presumably it will be the case that the Manager Summary page will not reflect increases over the year, or drawdowns on it.

Correct, as they are stored as Balance Sheet liabilities and depending on their purpose will be offset via payments or redistributed to the Profit & Loss as income.

Based on your additional information it appears that you have these two types of Special Accounts.

  1. Restricted Funds for specific purpose.
    External use - “money being collected to fund something at an educational organisation”
  2. Unrestricted Funds for specific purpose
    Internal use - " donations to support particular aspects of the charity’s work"

Now (1) is quite straight forward. The funds are not charity income as they are only being held in trust and are payable to a third party.

For (2) the situation is different as the funds are charity income as they are for charity expenses.
If we use your “Donation for website” as a model. Lets say you receive a donation for 5,000.
If you received this in December and your year end was Dec 31, then the charity would have income without related expenses. Therefore you post this receipt to a special account.

In the next year the charity incurs expenses for the website development. Therefore you would transfer via Journal “income” from the special account to the P&L income to match the expense as it occurs. In the end the donation will either be a profit or loss over the project.

Where the donation is for “normal activities, over one or two years”. Then you transfer income from the special account in proportion to the expenses occurring.

I would suggest against this unless this level of transparency is actually required.

Don’t understand this comment. the balance of the special accounts reflected in the Summary page will ebb and flow based on transactions posted to them.

Thank you again. What you say is very clear, and suitable for my level of understanding. I have created a second Control account for the Special account fund that does not become charity income. And for an expense related to one of the other Special accounts, I can see how a journal entry works. Journal entry was a new concept to me. A Special account now reminds me of Deferred revenue in a balance sheet.

As for the comment that you said you did not understand, it was not very clear.

I think I am still trying to work out how I would explain Special accounts as arriving through donations. Perhaps I could put the word “donation” in the title of the Control account - instead of the opaque Charity Commission term “Restricted Funds”, it could be called “Donations in Restricted Funds”.

Thank you again.