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How can funds be carried over to a future year?

Frequently at this time of year, an organization will want to use excess funds from a previous year for something in the future.  Remember, by definition in a non-profit, all unused funds are carried over to the next year.  (That’s what defines it as a non-profit, rather than paying out its profits to its owners or shareholders!)  The question here is how to designate some of those funds for a specific purpose, such as a new playground, or for general operating expenses in the next year.

For example, the Nursery School wants to set aside $5,000 from last year’s surplus toward replacing their playground equipment.

  • Set this up as a Board Designated Reserve (in QuickBooks, a “class”), since if the nursery school decided to use the funds for something else, they could decide to do so.  Note that if someone makes a donor-restricted gift for the Playground, you’d have to set up a separate fund, donor-restricted, since those funds could not be used for a different purpose.
  • Then in the Chart of Accounts, create an “other income” account called “Fund Balance Transfer” and use that for both sides of an entry dated 12/31:
    • Fund Balance Transfer    $5,000 coming out of (debit) the Nursery School’s General Fund
    • Fund Balance Transfer    $5,000 added to (credit) the Playground Reserve
  • On the Statement of Activities, it will show up as negative in the NS General Fund on 12/31/19 and positive on that same day in the NS Playground Reserve.
  • The available balance in your Playground Reserve will be found on your Statement of Fund Balance report.  (See How to Set up QuickBooks for your Congregation for a description of this.)
  • Although Fund Balances are similar to Liabilities, since they are not amounts that are owed to someone *outside* of the organization, they aren’t a liability.  Moving the $5k doesn’t change the overall net assets of your organization.

It is helpful to use the vocabulary “Reserve” for Board-Designated Reserves and “Fund” for Donor –Restricted Funds.  It helps the organization’s leadership with their understanding of the difference between board-designated and donor-restricted resources.