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Free Restricted Funds Essay Sample
Managing restricted funds calls for a unique accounting standard; this is because of the difference restrictions laid down by the donor or the government. Thus, restrictions can only be endorsed in a document known as “gift document” which clarifies the use of the funds. Hence, it could be temporary restrictions, permanent restrictions or unrestricted. It is, therefore, important to understand some terms commonly used in restricted funds. For instance, Special Purpose Fund can be described as large amounts of money kept aside and governed by special provision. Thus, there has to be an approval from the directors or the Chief Executive Officer to release for the intended use. While operating fund refers to money required to cover running expenses.
However, it is important to keep proper records and accounting for the funds. This is because the donors are entitled to the accountability of the funds. Another fact is that income must be recognized despite when the anticipated expense occurs. This also eases the financial reports since they are accurate and reliable.
Let us look into a scenario that involves Unified Path, an organization that solicits funds to aid charitable organizations. One of them is Millbridge Family Service (MFS) whose funds are handled through MFS special purpose fund meaning the funds are governed by special provisions .We shall analyze some events and try to show what impacts they have on the fundamentals of accounting of restricted funds.
- Unified Path transfers $50,000 to MFS for a family counseling program.
The purpose is specified, therefore, being a direct subsidy there is no payment required. MFS should perform the desired activity since this is a temporarily restricted fund.
- Unified Path has a bookkeeping department that carries out services such as supplies, insurance among other running expenses.
This should be recorded as an income but an expense for MSF since it is payable every month, for the one month MSF does not pay should be debited.
- MSF takes a $20,000 loan from Unified Path for operation.
To MSF it is a liability while Unified Path treats it as an income due to the payable interest and also the six month rent payable from MSF.
