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Part 2- Allocating Fund Balances

The Statement of Financial Position (Balance Sheet) has three sections and remember the relationship of these sections is expressed by this equation: Asset Section = Liability Section + Equity Section.

Net Assets – Unrestricted vs Restricted

For churches, the Equity section is normally made up of two sections:

• Unrestricted Assets: Those net assets in your church that are not restricted by any covenant or designation.
• Restricted Assets: Those net assets in your church that have been restricted by either a time designation, a use designation or other designation.

At year-end the Net Income reported on the Statement of Financial Activity (Profit/Loss) is transferred and reported on the Statement of Financial Position (Balance Sheet) and may need to be allocated between unrestricted and restricted net assets. To do this requires a General Journal Entry. This entry would be made on

In addition, this is a good time to review Restricted Assets to determine whether or not any of the restrictions have expired and some amount needs to be re-classified to Unrestricted Funds.

Designated Funds

Recorded on the Statement of Financial Activity via Classes/Category

If your church uses this method for recording designated funds, you will want to review these class/category balances at year-end to determine if any positive balances need to be classified I your balance sheet equity section as restricted funds.

Recorded on the Statement of Financial Position as Current Liability

If your church uses this method for recording designated funds, review them at year-end and determine whether or not these funds should be carried over to the new year in the same account, or should they be released to the equity section of your statement. Is this the purpose of this designated account expired, e.g. was this a mission trip fund for which the trip was already taken but there are funds remaining in the account balance. The Finance Committee and Leadership Team should make this decision.

Is your church keeping accurate financial records? That is our desire, for every church to have good books! Check us out today and make an appointment for a free consultation.