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10/06/2024 5:08 pm
Our organisation has been gifted an investment fund from which dividends are paid directly into our main bank account to be used for charitable purposes. The investment capital is available for use for larger charitable projects, provided certain conditions are met. How should I account for this?
Option 1: Using Fixed Assets (recommended)
If you have access to Fixed Assets then the recommended method is to add this as a Long-term Investment Asset. This will allow you to record gains/losses on the investment as well as manage income generated from it, eg. dividends
Setting up
- First off, create a new Fund to hold your investment funds (eg. "Investment Asset fund"). This fund is likely to be a Restricted or Endowment type due to its usage restrictions - please select an appropriate Fund Type.
- Create a new Fixed Asset to represent the investment asset.
- Asset name as appropriate
- Asset Category = Long-Term Investment
- Acquisition Date as appropriate
- Track as Financial Asset = YES (Check box)
- Opening Balance = investment value
- Fund (Asset) = select new Fund defined in Step 1.
- Depreciation = REVALUATION
This Asset will appear in your Balance Sheet under the Savings and Investments section
Recording transactions
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You can record Revaluations and Impairments for the Asset and Clubtreasurer will calculate and report gains/losses on your P&L Account.
- When you receive dividends these can be recorded as normal Receipt transactions into your bank current account (and the General Fund - or other Funds depending on usage)
Releasing capital funds for projects
- When you need to release funds from the investment for use in capital projects => open the Asset record and click the Asset Purchase button:
- Date = release date
- Account = select Account which receives the funds (note that you may need to create a 'dummy' Account if the funds are not physically transferred.).
- Cost Code = Because the asset has a depreciation rule you can only select "capital" Cost Codes which ensure this transaction does not hit your P&L.
- => You may need to create a new Payment Cost Code (Setup > Cost Codes) and check the "CAPEX" box in the Cost Code definition.
- Fund = select the Fund created in Step 1. above.
- NB. If you want to create more control here you could create two Funds in Step 1. This will allow you to report the balances of released and non-released capital from this investment.
- Fund A = "Investment Asset fund" - used to hold the Asset funds in Step 2.
- Fund B = "Investment Asset fund - Released Capital" - used to hold the released capital funds in this step. In this case you would select this Fund for this transaction.
- NB. If you want to create more control here you could create two Funds in Step 1. This will allow you to report the balances of released and non-released capital from this investment.
- Amount = enter the capital release value as a negative value as we are reducing the Asset value.
- Later, when you record your actual capital expenditure simply create your Payment transactions from the Account and Fund used above.
Option 2: If you do not have access to Fixed Assets
If your subscription do not include Fixed Assets then you can use Accounts and Funds only. Please note though that this method does not allow you to record gains/losses on the investment - and so depending on your accounting requirements, you may need to upgrade your subscription to include Fixed Assets.
Setting up
- Create a new Account to record where the investment funds are physically held and enter the opening balance date and value. Importantly, you should create this Account even if the monies are actually held in one of your existing Accounts - we'll manage that later. Note that the opening balance value will be allocated to your “General Fund” (we'll handle this in Step 3.)
- Create a new Fund for your investment. This fund is likely to be a Restricted or Endowment type due to its usage restrictions - please select an appropriate Fund Type.
- Create a Fund Transfer (Transfers>Fund/Event Transfer) from your General Fund to the new investment Fund. This will move the investment balance from the General Fund (Step 1.) to your new Fund. Use the same opening balance date and value.
- Optional - IF your investment balance is actually held in one of your existing Accounts, then you should select the "Include Account in Fund Transfer?” option which will also allow you to select and move the funds from your new Account to the existing Account(s) in the transaction.
These steps will add the investment and balances to your balance sheet and, importantly, will not report this as income.
Recording transactions
- When you receive dividends these should be recorded as normal Receipt transactions into your main bank account (and General Fund, or other funds, as appropriate).
- When you use the investment capital for larger projects, you would create a Payment transaction but this time select the Account where the funds are held AND your new investment Fund. This will record the expenditure and reduce the investment fund capital balance.
This topic was modified 6 months ago 2 times by CT Support