General Ledger Design and Available Balance

General Ledger Design and Available Balance

Regardless of how your organization derives the amount it has available for Grant making (for example, Spending Policy, Grant budgets, or Net Income Minus YTD Grants), it is important to design your Chart of Accounts to easily track the available amount. Some endowment, special project, or pass-through Funds will need unique or different accounts, as will the operating Fund.

The following sample charts illustrate several common approaches to tracking the available portion of component Funds and some other standard Fund accounting practices.

Master Chart Sample for Permanent Funds (Spending Net Income - Two Fund Balances)

This chart includes two Fund balances: Principal and Income. The permanent Funds that use this Master Chart spend net income. FACTS can post income earned on investments to the G/L accounts of your choice (in this case, the Interest Income (r2) account is credited).

At year-end (or any time you run a YTD Balance report), r2 accounts will be rolled into the q2 account. Grants expense accounts (x2) will also be rolled into the Available, so the resulting Income balance will be equal to the available Grant dollars.

Notes for chart:

• This chart is designed for an organization that uses a single checking account to service all Funds. The 10000 account represents a Fund’s balance in the shared checking account.
• There is one pooled asset account, representing the Fund’s holdings in the investment pool.
• The chart is set up with two balance accounts, so the available amount is reportable separately for statements and inquiries. In this case, the q2 account is a traditional income balance account (see below).
• Interfund Gifts and Grants are recorded by debiting the t2 account of the giving Fund (Grants) and crediting the t1 account of the receiving Fund (Gifts), in addition to offset entries in the appropriate asset accounts. In this way, interfund Gifts and Grants do not add to revenues and expenses on the IRS 990.
• Revenues and expenses (fees) from investments flow automatically into the G/L from FACTS.
• FIMS calculates administrative fees and posts to the proper expense acct.
• All r1 revenue accounts are added to the q1 balance account when the balance is computed, and r2 accounts close to q2 balance accounts. This chart is designed for an organization that spends income, so the interest income account has an account type of r2.

Master Chart Sample for Permanent Funds (Calculated Spending Policy – Two Fund Balances)

This chart also includes two Fund balances, which are not traditional Principal and Income balances. They are more accurately described as Non-Available and Available balances.

NOTE: In this case, the Interest Income account is an r1 account that will be rolled into the q1, Non-Available balance.

This organization does not spend net income. Instead it periodically (annually) computes an available amount based on a Spending Policy. The calculated available amount is then transferred by debiting the Transfers - Non-available, t1 account and crediting the Transfers - Available, t2 account. Some organizations also transfer the Spending Policy amount out of the investment pool into cash or a fixed interest holding account for Grant making purposes. Organizations that use this cash management method often take the “float” on the Cash account to help defray operating expenses.

Notes for chart:

• Standard permanent Funds can participate in one or both investment pools.
• The chart is set up with two balance accounts, but the q2 account is a not a traditional income balance account. The Fund Balances are named Non-Available and Available, rather than Principal and Income.
• An available amount is periodically calculated based on a Spending Policy. An intra-Fund transfer of the calculated amount is made by debiting the t1 account and crediting the t2 account.
• Since the available amount is based on a Spending Policy, the interest income account has an account type of r1, so that it closes to the non-available balance.
• Bank and administrative fees are taken from the non-available balance, so that the YTD Available balance is the same as the available to Grant amount.

Master Chart Sample for Permanent Funds (Calculated Spending Policy - Three Fund Balances)

This chart reflects a calculated Spending Policy. However, in order to easily track the accumulated total of Historic Gifts, this Master Chart tracks three balances: Historic Gift Balance (q1), Accumulated Returns (q2), and Available (q3). The Interest Income account is an r2 account that will be rolled into the q2, Accumulated Return balance.

When this organization annually computes their available amount, they transfer the amount by debiting the Transfers from Returns (t2) account and crediting the Transfers to available (t3) account.

NOTE: In states that have adopted the Uniform Management of Institutional Funds Act (UMIFA), the accumulated total of Historic Gifts usually constitutes the permanently non-spendable portion of the Fund.

Notes for chart:

• The chart is set up with three balance accounts: Historic Gifts, Accumulated Earnings, and Available. This chart does not track traditional Principal and Income.
• The available amount is periodically calculated based on a Spending Policy. An Intrafund transfer of the calculated amount is made by debiting the t2 transfer account and crediting the t3 transfer account.
• Since the available amount is based on a Spending Policy, the Interest Income account has an account type of r2, so that it closes to the Accumulated Earnings balance, along with the other investment returns.
• Bank and administrative fees are taken from the Accumulated Earnings balance.
• Returned (canceled or refunded) Grants from previous years should be credited to a revenue account with an account type of r3. Returned Grants from the current year should credit the Grants expense account.

Master Chart Sample for Non-Permanent Funds (One Fund Balance)

The master chart for non-permanent Funds (also called pass-through or spend-down Funds) is typically much simpler than that for permanent Funds.

Notes for chart:

• Spend-down Funds are invested in a fixed income pool.
• The relative simplicity of this chart is a result of maintaining only one Fund balance, which also eliminates a number of transfer, revenue, and expense accounts. If an organization has any Funds with two balances, the single Fund balance of non-permanent Funds would be given an Available balance type (for example, q3).

Master Chart for a Typical Operating Fund

Notes for chart:

• The operating Fund chart often includes contra and/or long term asset accounts.
• This organization’s operating Fund is not endowed, and therefore has a single income balance.
• The administrative fee account for the operating Fund is a revenue account.
• The operating Fund chart typically includes a number of unique expense accounts.