Fund transfers and account transfers are often necessary transactions in any non-profit organization’s financial activities. It’s important to understand the difference between a fund transfer and an account transfer, and how you can perform them in IconCMO. In this first of our two-part series, we will explore fund transfers.
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A fund allocates and tracks money for a specific purpose. A fund transfer represents a reallocation of liquid assets from one fund to another. There are four main situations in which funds are transferred:
1. Interfund Loan: Money is transferred with the expectation that it will be repaid. The fund making the loan has a bank account credited and an Interfund Receivable account debited, while the receiving fund has a bank account debited and an Interfund Payable account credited. When the money is repaid (only with a Interfund Payment transaction), the transaction is reversed.
2. Interfund Transfers: Money is transferred without the expectation that it will be repaid. For example, the General Fund may provide a monthly subsidy to the Youth Fund to help them support their activities. The bank account from the fund that is doing the subsidizing is credited and an operating transfer account called “Transfers Out” is debited. The receiving fund has the bank account debited and an operating transfer account called “Transfers In” is credited. Both the “Transfers In” and “Transfers Out” accounts are of account type “Other Financial Sources-Uses” and category type “Operating Transfers.” Figure 1 shows the posting of such a transaction, while Figure 2 shows the resulting entries in the general ledger.
3. Interfund Payment: This is a repayment of an Interfund Loan. A fund was given money via an Interfund Loan and wants to repay it. This transaction will clear the Interfund Payable account from the fund having the loan and it will clear the Interfund Receivable account from the fund making the loan.
4. A fund is closed: A fund with a net asset value is being closed out.
Because Restricted and Temporarily Restricted funds are donor-restricted for specific use, money should not be moved out of these types of funds using Interfund Transfers or Interfund Loans. When money is transferred, it is always done within bank account types.
According to GAAP guidelines, money cannot be transferred into revenue or out of expense accounts, since by definition a transfer is neither revenue nor an expense.
Interfund Loans and Interfund Payments are reported on the Statement of Financial Position (Balance Sheet). Interfund Transfers are reported at the bottom of the Statement of Activity report.
In IconCMO, the fund transfer tool is accessed by selecting General-Ledger : Funds : Fund Transfer.
- Enter the dollar amount being transferred and choose the type of transaction. Interfund loans are transfers that are expected to be paid back. Interfund transfers are not expected to be repaid. Interfund payments repay an Interfund Loan. The amount entered must be a positive value.
- Select the “From Fund” and the “To Fund” funds. Again, keep in mind that the “From Fund” cannot be a restricted or temporarily restricted fund.
- Select the bank account identifying where the money resides. Normally, the “Transfer To” account will be the same as the “Bank Account To Use”, however, by choosing a different bank account the system will automatically credit the “Bank From” account and debit the “Transfer To” account. This provides the additional benefit of transferring money from one fund to another and from one account to another within a single transaction.
- When all information has been entered, press the “Post” button. Using the bank account selected, the “From Fund” will be reduced by the amount entered, while the “To Fund” will be increased by the amount entered. The fund dollars will be transferred, even though there may be insufficient dollars in the “From” fund. Account balances will not be affected unless you are also transferring the money to a different account.
One thing you cannot do with the fund transfer tool is perform a transfer of dollars between accounts using the same fund as both the “From Fund” and the “To Fund.” You can, however, perform such an account transfer using the journal entry tool. Next time, we’ll take a look at account transfers.