On 6/2/2017 12:45 PM, Mick Hartzell wrote:
Eneko,
Remember this:
In accounting Debits must equal Credits.
.........
Assets = Debt + Equity.
Mick
It will perhaps be better if we do not oversimplify, using assumptions
that might be wrong.
A debt is a liability, but a liability is not necessarily a debt. Not in
the way we ordinarily think about debts.
To give an example. Suppose the entity is a church (a non-profit) and it
has been decided that a new church bus is needed. A campaign is begun to
raise the necessary funds. Donations are solicited FOR THIS PURPOSE. One
proper way to be accounting for these donations as they come in is to
establish a liability account "restricted to bus" under the liability
account "donor restricted funds". As donations (for the bus) come in,
debit bank account and credit this "liability".
Temporarily, at least, that money IS in the bank account and available
for cash flow, with the fact that it ULTIMATELY isn't "there" reflected
in that liability. When the bus is purchased, that is a debit to "bus
basis" and a credit to cash AND the treasurer enters a transaction to
debit "restricted to bus" and credit "donations -- bus fund".
Essentially NOW those donations have been :earned" by the organization.
I said "one proper way" because there are alternatives. Which
alternative best might depend on the legal strength of the restriction,
the FORMALITY of the restriction.
Michael D Novack
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