Disclaimer: New to accounting, so bear with me if I make mistakes.
Seeking some advice about how to solve an accounting challenge in ERPNext. Our nonprofit has chapters who each have a sub-account under our primary bank account (basically subsidiary bank accounts with their own account numbers, but all compiled under one EIN). These accounts allow them to spend more easily without having to go through reimbursements, but it also means that the balance on the accounts is not always indicative of how much money they actually “own”.
(Technically, the money is owned by the main org, but there’s historical reasons we’re working around for why it’s allocated to chapters the way it is right now)
Here’s our thoughts:
Have every bank account under Cash and Cash Equivalents in the CoA.
We were already thinking of having an accounting dimension for fund restriction vs. unrestricted, so just maybe add another dimension for each chapter.
Tag the money that comes in with the chapter that “owns” it, but use the CoA accounts as the physical locations of the money.
Anything we might have missed or any suggestions for a standard way to handle something like this? I was thinking it might be something like an “advance” or “allocation” so maybe there isn’t a need for this setup?
Happy to answer questions, in case some of this was unclear.
I am a little confused - how is it that they have their own sub-accounts but it does not reflect how much they own. That means they get money and they spend so the balance should be reflective - simple in and out. Unless now reach zero and need to go into overdraft and borrow from other chapters/parent?
If I have understood you correctly - physically the money is mixed so in the software you want to somehow track how much each chapter “owns” (income less expenses = balance)
At our place we dont have chapters but we use balance sheet liability accounts to track various funds, projects, special donors & restrcited income. That way at a click of button you know how much deficit/surplus each project has.
Do you have to comply with International Public Sector Accounting Standards (IPSAS)? Then (i think) point 3 might not work
So right now, a chapter (under our 501(c)(3) status) can fundraise say $1000. The money goes to the main account. The plan is for chapters to submit a budget for a semester (these are student chapters). Let’s say the chapter say they need $500 for the semester. The plan would be for us to move that $500 into the sub-account so they can spend it more freely and we don’t have to deal with reimbursements. In this situation, the chapter has $500 in the sub-account and $500 in the main account, but our policy is to allocate any money they fundraise to that chapter so they “own” $1000.
Yes, that’s correct!
Sorry new to this, so would these be keeping track of the amount owned by each chapter in accounts under the Liabilities section? Would this bloat the report as there are many chapters?
Not IPSAS I don’t believe, but we were looking at INPAS. We’re in the US, if that makes any difference.
We have a similar set up at my organization, with a central administration and several semi-autonomous units. Accounting dimensions was designed for this kind of purpose.
I don’t quite understand what you’re saying here. Creating an accounting dimension called “Chapter” would be a very standard approach. I’m not sure how a “Restriction” dimension would work on top of that. Can you say more?
Thanks for your insight! It’s good to know that making a dimension for chapters is standard!
About the fund type dimension, since you can create multiple dimensions, I was imagining another accounting dimension that we just tag revenue / assets with which specifies whether that money is from a donor restricted source or unrestricted operational funds.
So money in the bank could belong:
To the central admin + be unrestricted
To the central admin + be restricted by activity or time
To a chapter + be unrestricted
To a chapter + be restricted by activity or time
This is to cover reporting requirements for nonprofits regarding donations and grants. Although maybe I’m overcomplicating it if it’s confusing? Very open to understanding how this would typically be done!
Any accounting dimension is literally that: a dimension. So, if you make Chapter categorization mandatory for all transactions, each chapter effectively has its own chart of accounts. If you want, you could add the Project doctype as a non-mandatory dimension if you need to earmark some funds for specific implementation.
The first step might be to think through the accounting a bit. Are these dimensions things that you want to show up in your financial reports, or are they other kinds of controls?
Oh huh for some reason my reply disappeared or wasn’t approved.
I was saying we’re following the INPAS (International Non-Profit Accounting Standard) as a guideline for what statements we should be preparing. They specify separating by fund and restriction. So seeing as some of our funds are donor-restricted to a certain chapter, I’m going to say we would want that to appear on our financial reports.
Assuming that we’ll have to make new reports using the financial report templates? Since the baked in financial reports seem pretty restricted to the business style of accounting?
The built in reports can handle dimensions just fine. More specifically than that, you’ll probably just have to check and see. Customization is what Frappe/ERPNext is designed to do well.
I work in non-profits and have never encountered major limitations in how the data is organized, but perhaps we use "business style” accounting. I’m not really sure what that means.
Gotcha, yeah will play around with it! Also talking with a few community members to possibly take up the deprecated non-profit module so the experience will definitely be applicable there. (Though we’re still looking to see if there’s any official plans from Frappe or others working on it in case efforts are better concentrated there)
Anyways sorry, I should be more clear: “business-style” meaning the selling, buying, profit focused aspects of the built-in reports. edit: Thank you for all your help and patience, haha, definitely a lot of new stuff for me to wrap my head around!
In my experience at least, there doesn’t tend to be much difference between for-profit and non-profit accounting. Sometimes there’s a terminological difference (profit vs. surplus, for example), but ledgers don’t really care about that stuff. You’ll still have budgets, receivables/payables, income/expenses, balances, cash flows, etc. Unless your needs are highly unusual, I suspect ERPNext will cover your use case with relatively little (but probably not zero) customization.
I’ve not used the non-profit module at all, but it seems to be focused on providing additional structure to membership-driven donations. Glad to hear there’s interest.
