Record an Expense AND a Liability Debit

Record an Expense AND a Liability Debit

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How would I record the following:
We (non-profit animal shelter) perform spay/neuter surgeries as part of a grant we received. Our local County Animal Services also performs these surgeries as part of this grant, and bills us each month.

For our purposes, the grant is set up as a Grant [Unearned Income] Liability account, from which our monthly services are debited while crediting income. How do I record the checks (cheques) paid to the County as an expense, while still debiting the Grant Liability account? I'm unclear on what the intermediate/adjusting entry should be?

Replies (10)

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By The Innkeeper
06th Nov 2013 16:51

Sorry to sound the

grumpy old man but we speak English here NOT American so its cheques not checks

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By Jackie C.
06th Nov 2013 16:58

Sorry!

I was momentarily pleased because I thought I had a real answer.  Grrr.  So I assume you don't have an answer to my question?

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By User deleted
06th Nov 2013 17:02

I'm not sure I fully understand the arrangements

But it sounds as though you have received a grant that is to be used partly to finance your own activities and partly finance the activities of  another party? If that's the case, then you're simply holding part of the grant money on behalf of someone else - the payments to that someone else should go nowhere near the profit and loss (income and expenditure) account. If you want to record the payments out as an expense then you will need to record a matching income credit. Then again, I may have completely misunderstood the arrangements.

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Replying to Sharma:
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By Jackie C.
06th Nov 2013 17:11

That's basically it...

...but I'm still supposed to reduce the remaining grant monies (debit the liability account) by whatever amount we pay the County.  If I do that, what are the entries on the other side???

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By User deleted
06th Nov 2013 17:06

PS

Does anyone around here know how to insert paragraph breaks with Internet Explorer 10? (Not my browser of choice, but sometimes there is no choice)

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By TerryD
06th Nov 2013 17:11

Try this

As I understand it, you received a grant of, say, £12,000 to cover the performance of this task for a year. Say £6,000 is to cover your costs and £6,000 to cover the sub-contracted part.You correctly credited the whole £12,000 to deferred income when received, then are transferring £1,000 per month to income. The £500 per month that you will be paying the County will then be debited as an expense, leaving you with net income of £500 per month (less, of course, the cost of your own materials, etc.).

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By young ronaldo
06th Nov 2013 17:25

Either

As BKD suggests, i dont think there should be any net effect to your P&L. Doesnt the following, as simplistic as it is, work?

Dr Grant Liability Account

Cr Bank Account

If you feel you need to make entries to record the other providers cost you could also post additionally

Dr Cost of sales

Cr Sales / Grant income

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Replying to Paul Xledger:
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By Jackie C.
06th Nov 2013 17:32

You all are very helpful!

Dr Grant Liability Account

Cr Bank Account

That's exactly what I did at first, but our Executive Director (not a financial person except for how it works within the budget) wants to show it as an expense.  The more I read all of your replies, the more I realize that I was right the first time and that it shouldn't be an expense at all.

I will discuss this with her.  Thank you all for your prompt and helpful replies!

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By TerryD
06th Nov 2013 17:25

So it depends....

So it depends of the nature of your agreement with the grant provider. If you are under an obligation to provide the whole service, even if the County were to stop doing this service, then the whole grant is your income. If, on the other hand, your contract specifies that £x of your funding is to be paid to the County, then that might be the County's income, not yours and young Ronaldo's approach is correct. The question is - how much control do you have over the spending of the grant funding?

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By Chris Smail
07th Nov 2013 07:49

What are you?

If you are a charity then under the SORP the grant should have come in as income (into a restricted fund maybe) when received and the payments expensed when paid.

If a company but not charitable then you must use UK GAAP and treat as set out above.

If an unincorporated trust then, provided there is logic and consistency to what you do and you fully disclose your policy then in my opinion you can in fact do whatever you like.

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