In my last post, I showed you how to record restricted contributions and the incurred expenses for your ministry in QuickBooks Online.
In this tutorial, we focus on how to release those funds from the restricted class to the general fund class in QuickBooks Online. There are two different methods to record the release of used funds from restriction.
Option 1: If you are only using class tracking for your funds and not location tracking, you need to use the check method to record the release of the restricted funds.
Option 2: If you are using class tracking and location tracking, you need to use a journal entry to record the release of the restricted funds.
To get started, watch the video and follow along with the guide.
Note: You should only release the equivalent of the actual cash of the fund spent either on a monthly basis or a day after you incur the expenses toward the restricted fund.
Log into QuickBooks Online.
Create Released from Restriction Account and Clearing Account
Make sure you have a revenue account called “Net Assets Released from Restriction” listed on your chart of accounts.
Create a clearing account called JOURNAL to keep track of all the journal entries you create in QuickBooks Online. Thanks to Megan Tarnow from The Mobius Group for the clearing account tip.
Option 1: Release Used Restricted Funds Using A Check
Create a vendor name called “Net Assets Released from Restriction” in your vendor list.
Click the +New icon and select expense or check under the vendors' column.
Payee = select the vendor name called “Net Asset Release from Restriction”
Payment Date = enter the payment date
Payment method = you can skip this
Ref No/Check No = Enter the number sequence like FR-01 or something
Line 1 Entry - release revenue from restriction
Category = select the Net Assets Released from Restriction revenue account
Description = enter “release used [fund name] from restriction”
Amount = enter the amount used
Customer = Customer/restricted fund project
Class = Select the Temp or Prem. Restricted Fund or your restricted fund name
Line 2 Entry - release revenue from restriction
Category = select the Net Assets Released from Restriction revenue account
Description = enter “release used [fund name] from restriction”
Amount = enter the amount used as a negative number
Customer = customer/restricted fund project
Class = select the General Fund class
Line 3 Entry - release the cash from restriction
Category = select the bank account the original restricted funds were deposited into from the chart of accounts
Description = enter “release used [fund name] from restriction”
Amount = enter the amount used
Class = select the General Fund class
Line 4 Entry - release the cash from restriction
Category = select the bank account the original restricted funds were deposited into from the chart of accounts
Description = enter “release [fund name] used from restriction”
Amount = enter the amount used as a negative number
Class = select the Temp or Prem. Restricted Fund class or your restricted fund name
Memo = repeat the same description from above
Click save and close
Impact on financial statements
When you look at your Statement of activities by class report or the project profitability report by classes, you will see a decrease in the net assets released from restriction revenue under the restricted fund class and an increase for the same amount and account under the General Fund class creating a net balance of zero.
When you look at your statement of financial position by class report, you will see the cash has been released from restriction between the general fund and restricted fund class.
Option 2: Release Used Restricted Funds Using A Journal Entry
Click the +New icon and select journal entry under the other column.
Journal entry date = last day of the month or second day after expenses are incurred for the restricted fund
Journal entry number = Enter a number sequence like FR-01 or something
Line 1 Entry - clearing account
Account = select the JOURNAL account
Debit = enter the amount as zero
Description = enter “release [fund name] used from restriction”
Name = leave blank
Location/Division = 1. Without Donor Restriction
Class = Select the General Fund class
Line 2 Entry - release revenue from restriction
Account = select the Net Assets Released from Restriction revenue account
Debits = enter the amount used
Description = enter “release used [fund name] from restriction”
Customer = customer/restricted fund project
Location/Division = 2. With Donor Restriction
Class = select the Temp or Prem. Restricted Fund class or your restricted fund class
Line 3 Entry - release revenue from restriction
Account = select the Net Assets Released from the Restriction revenue account
Credits = enter the amount used
Description = enter “release used [fund name] from restriction
Customer = customer/restricted fund project
Location/Division = 1. Without Donor Restriction
Class = select the General Fund class
Line 4 Entry - release the cash from restriction
Account = select the bank account the original restricted funds were deposited into from the chart of accounts
Description = enter “release used [fund name] from restriction”
Debit = enter the amount used
Customer = customer/restricted fund project
Location/Division = 1. Without Donor Restriction
Class = select the General Fund
Line 5 Entry - release the cash from restriction
Category = select the bank account the original restricted funds were deposited into from the chart of accounts
Description = enter “release [fund name] used from restriction”
Amount = enter the amount used as a negative number
Customer = customer/restricted fund project
Location/Division = 2. With Donor Restriction
Class = select the Temp or Prem. Restricted Fund class or your restricted fund name
Memo = repeat the same description from above
Click save and close
Impact on financial statements
When you look at your statement of activities by class report, you will see a decrease in the net assets released from restriction revenue under the restricted fund class and an increase for the same amount and account under the General Fund class creating a net balance of zero.
When you look at your statement of activities by location report, you will see a decrease in the net assets released from restriction revenue under With Donor Restriction and an increase in the same account and for the same amount under Without Donor Restriction creating a net balance of zero.
When you look at your statement of financial position by location report, you will see the cash has been released from restriction between the With Donor Restriction and Without Donor Restriction locations.
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Do you have questions about using QuickBooks Online to run your nonprofit or church? Contact me - I am happy to help!
