Designing the General Ledger Fund Classes and Accounts

Designing the General Ledger Fund Classes and Accounts

Designing your General Ledger is the most important step in General Ledger implementation. All of the financial transactions of a charitable organization involve specific Fund(s). The transactions are summarized in the Fund-level General Ledger, which keeps a complete set of accounts for each Fund.

FIMS can automatically build a different standard set of accounts for each of your Funds, based on their Fund Class codes. Refer to Maintaining Fund Class Codes in the Fund Management module for more information. Funds are split into different Fund Classes for the following reasons:

• Different Funds are involved in different kinds of transactions. For example, some Funds make Grants while others incur operating expenses.
• Similar transactions are handled differently depending on the Fund. For example, Gifts are deposited into different accounts for different Funds.
• Funds are invested differently. For example, some assets are invested in pools, while others are held in individual accounts.
• Fund balances are tracked differently. For example, some Funds maintain a principal / non-available and an income / available balance, while others only maintain a single, available balance.
• Funds arrive at their available balances differently. For example, some Funds spend net income while others employ a spending rule calculation.

You can also add a Fund Class for informational purposes. For example, quasi-endowed Funds, which have the same accounts as endowed Funds, could have a different Fund Class in order to distinguish them easily for reporting purposes.

Most organizations have the following Fund Classes:

• One for endowed Grant making Funds (more if there are investment variations).
• One for the Operating Fund (usually a Fund Class with only one member).
• One for each necessary category, such as pass-through (single available Fund balance), special project operating (usually a single Fund balance and multiple expense accounts), non-permanent (an ambiguous non-endowed category), or deferred asset (endowed, non-Grant making).

FIMS Support will help you during this phase of General Ledger design. The following questions may also help you determine the accounts you need to maintain:

• Will you be running a Fund level General Ledger? A Fund-level General Ledger is necessary if you wish to produce a donor statement and to comply with FASB reporting guidelines.
• Does your organization use a Cash or Accrual Basis of Accounting? FIMS can accrue Grant liabilities and pledges receivable. Both are stipulated by FASB guidelines. FIMS tracks investments at book and market.
• What Fund attributes will your Fund codes represent? This coding makes up the first four segments of the Fund’s General Ledger account keys.
• Does your organization spend net income for Grant making, or do you use a Spending Policy to calculate available dollars?How will you track the available dollars?
• What debits and credits do you require for routine transactions? Automatic General Ledger Journal entries are set up in several places (for example, the Fund Class record, the Vendor and Vendor Class records, and the Investment Pool record in FACTS).
• Will you use FACTS to track pooled investments, and what Fund-level natural account number will represent each Fund’s balance in the pool? Each investment pool will be represented by a single account in General Ledger (or two accounts if you track book and market).
• What standard set of General Ledger accounts should a typical endowment Fund have? Pass-through? Special Project? Operating? Other? The basic account set for each category of Fund will be entered into the Master Chart.
• What General Ledger accounts do you need to track the assets of each Fund Class? The unique assets held by individual Funds will not be reflected in the Master Chart. General Ledger accounts that track the value of unique assets can be added later on a case-by-case basis. If you use FACTS to manage investment pools, you should include an asset account to represent each Fund's (market) share in the pool. Debit and Credit entries to these Fund level pooled asset accounts are passed to FACTS for inclusion in the valuing process. By having two investment asset accounts (book and adjustment to market), you can also track book value for each Fund. However, most organizations do not track book value, since book and market are kept at the pool and / or investment account level in FACTS.
• Do you need to track Fund balances for principal and income separately? The answer to this question will be yes for endowed Funds, and no for pass-through Funds. Quasi-endowed Funds are those for which maintaining the Principal as a non-spendable balance is not required, but the board has decided to do so. All Funds within a Fund Class must be consistent in this regard.
• How will you track available dollars? If you spend net income, the income balance will be the traditional net income balance (the available balance). If the Fund is on a Spending Policy, you may still use the income balance to track available dollars, but you will have to transfer dollars from the Principal non-available balance based on your Spending Policy calculations, and during the year, interest and dividend income will close to the Principal balance. You may instead choose to maintain traditional Principal and income balances, and transfer money from one asset account (for example, investments) to another (for example, cash) to track available dollars.
• What revenue accounts do you need? Possibilities for Grant making Funds include Gift Revenue to Principal, Gift Revenue to Income, Pledge Revenue, Interest Income, and Realized and Unrealized Gains. Will these revenue accounts close to Principal or Income (will they be R1 or R2 accounts)?
• What expense accounts do you need? Possibilities for Grant making Funds vary widely, but often include Grants Expense, Administrative Fee Expense, Bank Fee Expense, and Miscellaneous Expense. Some Funds may incur unique fundraising expenses, but these can sometimes be added on a case-by-case basis (without being reflected in the Master Chart). Special Project Funds are frequently run like operating Funds, and have a number of expense accounts to categorize project expenditures.
• Do you need to include any additional accounts (for example, long term assets, payroll liability, administrative fee revenue, operating expense accounts) in the Operating Fund Class? This is a special case because there is normally only one member of this class.

Creating Basic Fund Class Records

Once you decide which Fund Classes you will need, you must create a basic Fund Class record for each Class. A basic record will have only the class code, and the description. It does not include the transaction mapping.

Refer to Maintaining Fund Class Codes in the Fund Management module for more information on working with Fund Class codes.

Entering the Master Chart Records for Natural Accounts

Once you set up your Fund Classes, you must create a Master Chart record for each natural account that you need for all of your Fund Classes. Each Master Chart record will have a Natural Account Number, Description, Account Type, and a list of the Fund Classes that use the account.

Refer to Maintaining the Master Chart of Accounts for more information.

NOTE: Many natural accounts (for example, the checking account) are used by more than one Fund Class. As you enter the Master Chart records, you should consult the Master Chart Report, which lists either the accounts for a specified Fund Class, or all accounts, regardless of Fund Class. Refer to the Master Chart Report in the Reports chapter for more information.