In order for you to fully understand the answer, I thought I'd give a little background info on hownon-profit
accounting works:
In lieu of using the expression "retained earnings" (likefor-profit
organizations do),non-profits
use the expression "net assets," which shouldshow-up
in the Equity section of your balance sheet.
Net Assets are typically divided up into 3
categories:
- Temporarily Restricted
- Permanently Restricted and
- Unrestricted
The sum of these (Total Net Assets) is the equivalent to whatfor-profits
would consider Retained Earnings.
By default, donations you receive will be considered unrestricted. So, to designate income you've received as either Temporarily or Permanently Restricted on the balance sheet, you must do a separate journal entry, essentially taking dollars out of Unrestricted designation and moving them into one of the two restricted categories. Since you've mentioned Temporarily Restricted, I'll use that in my example:
Debit: Unrestricted $100,000
Credit: Temp Restricted $100,000
You'll notice the change this causes on your Total Net Assets (Temp Rest + Perm Rest + Unrestricted = Total Net Assets) is $0, because you've simply moved dollars out of unrestricted and into a restricted designation.
Here's your answer:
As you spend down the restricted funds or (as your question seems to indicate) the donor unrestricted the funds they have donated, you would simply do the reverse of the above entry for the amount that you have spent or, in this case, what's left in temp restricted that the donor is nowunrestricting.
FYI, you should have a spreadsheet or something that ties to the amounts of your restricted funds.
It's a pain in the butt, I know, but it's hownon-profits
do things.
