Recording scholarships in homeschool group bookkeeping

 
Hi Carol,

How are scholarships recorded in our homeschool co-op’s bookkeeping? We charge an amount for classes but would like to provide a scholarship and return the full amount of tuition or provide a partial scholarship back to the family. For example, we collect the full tuition payment due but then write a check with a certain scholarship amount back to that same family. Is that considered simply as an expense?

Thank you so much!
Sharon

 

Sharon,

What you call a scholarship is really a tuition discount.

The best way to handle this is to give the discount BEFORE the family pays anything. Then the payment is recorded as income (although smaller income than originally budgeted).

If instead you wish to return some of the tuition a family pays, then you record it as a reduction income. We accountants call it a “contra-income” account. Sort of a negative income account. It’s not an expense; it’s a reduction in income.

Something like this:

Income

Tuition Payments: $5,000

Tuition reduction to needy family: ($500) numbers in parentheses are subtraction or negative numbers

Total Tuition Collected: $4,500

So, it’s not recorded as an expense, even if you write a check. It’s recorded as a contra-income (or a reduction in income) transaction.

I cover this topic and many more in my book, Money Management in a Homeschool Organization. You might find it helpful.

Carol Topp, CPA

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Returning homeschool co-op supplies to parents

Carol,
How should our homeschool co-op should handle classes where there are nonconsumable items purchased?  We had a class where Lego kits were purchased for a class.  Students shared kits and we charged a small fee.  Now parents think they should get half of the kits or that future classes should have to pay for the kits and they receive a credit each time.
We have never done that with any classes in the past.  It has always just become property of the co-op.  It sounds like it would be a bookkeeping nightmare.
Thanks for your input,
Becky  in KY

Becky,

You’re right, tracking the LEGO kits sound like a bookkeeping nightmare.  I like to keep things simple but as fair as possible.

We had a similar situation in my homeschool co-op with Spanish books.  The teacher bought a curriculum to use and was planning on spreading out the cost of the teacher manuals and CDs over two years of students. It took some guess work to figure out how many students she would have this year as well as future years.  In the end we decided  that this year’s students would end up paying for a portion of the teachers books and CDs.  The rest of the cost was absorbed by the co-op as a whole. The co-op then owned the teacher books and CDs. Future Spanish classes were charged a small supply fee so that the co-op could recoup the cost of the teachers books and CDs.

I think the co-op should own non consumables, not the individual parents. Sounds like that’s how you have done it in the past. Parents pay a supply fee, but are not entitled to the equipment afterward nor a credit from future students.

So maybe instead of charging the current students full price for nonconsumables, your co-op could try to save up some money over a few years and purchase nonconsumable equipment that will be owned by the co-op. Or have a fundraiser to buy the equipment.

Carol Topp, CPA

Is a surplus added to next year’s budget?

Carol,
When does extra money from the previous year’s budget get added into the new year’s budget? Our treasurer  dumped all the leftover money from our prior year into the new year. I am pretty sure that isn’t supposed to happen. The way she has it, it looks as though we have $1,200 more to spend in next year than we really do.
Am I right to think that we have to base our budget with just dues that we hope to get in the coming year?
Angela

 

Angela,

Technically, a surplus (leftover money) never gets added to the next year’s budget. The surplus stays in your checking account (as an asset) and is reflected on the Balance Sheet (as the balance in the checking account), not as part of next years’ revenues.

In accounting we have two major financial statements: the Statement of Revenues and Expense (sometimes called Profit and Loss) and the Balance sheet which shows what you own (the assets) and what you owe (the liabilities).

Of course your board should have a plan for your surplus. Maybe it stays as an emergency fund or as the deductible on your insurance policy or is accumulated for a big future purchase (like equipment or a building). Some boards like to have the treasurer put a footnote on the Balance Sheet about money is kept in reserve and it’s purpose, so it doesn’t get spent. Or they move some money into a saving account, so it is less likely to be spent.

Something like this:

Balance Sheet as of DATE
Assets
Checking Account $5,400.00
Savings Account* $1,550.00
Total Assets $6,950.00

*Savings set aside for:
Emergency fund: $1,000
Insurance deductible: $500
Saving for science equipment: $50

“Am I right to think that we have to base our budget with just dues that we hope to get in the coming year?” I think that is wise fiscal management to live within your means each year.

My book Money Management in a Homeschool Organization would be very helpful to your treasurer.

Carol Topp, CPA
HomeschoolCPA.com

Is there a rule about keeping our nonprofit bank account under $25,000?

There has been a “rule” passed down from former leaders of our homeschool group to me that we have to keep our bank accounts under $25,000 or we will lose our tax exempt status. I do the books for another tax exempt organization and we often have our accounts over that amount.

I think they may be getting confused with the 990 rules regarding the limit to file the 990N, which is gross receipts under $50,000. Maybe it used to be $25,000?

In any case, that is gross receipts not assets and we don’t have gross receipts or assets over $50,000. So, I have never heard of this rule with the $25,000 bank balances, as I have done 990 taxes before. But I wanted to be able to feel confident that I did not miss anything and verified it with one other reputable source.

Can you tell me if I am correct in my assumptions?

Teri in Ohio

Terri,

You are correct!

They are confusing gross revenues (which used to have a threshold of $25,000 for filing the the 990N) with assets.

Gross revenues are the total (gross) revenues (income) that come into your organization in a year. The IRS uses gross revenues as a threshold very frequently such as which annual information return, the Form 990 to fie.
Assets are what your organization owns. For most homeschool groups their assets is the money in their checking accounts.

A nonprofit organization can have any amount they wish in assets (in your case, the bank account).

For example, the American Red Cross has $517 million in cash and checking accounts (Source: Form 990 dated June 30, 2015). Their other assets include buildings, a huge investment portfolio, and inventory. They need all this money in reserve so that they can assist victims when the next natural disaster happens.

It’s not the first time I’ve heard gross revenues and assets get confused.

My book Money Management in a Homeschool Organization would probably be helpful. I try to make confusing topics like money and taxes clear!

Carol Topp CPA
HomeschoolCPA.com

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Homeschool Treasurers: Do this before giving your board a financial statement

Homeschool treasurers: before you prepare a financial statement for your board meeting you should reconcile your bank account!

Why is reconciling bank accounts so important?

Vickey Richardson of FreeChurchAccounting.com explains,

 I have discovered with my bookkeeping business that reconciling accounts are not very high on some organization’s to-do list. When accounts are not reconciled … financial statements are usually NOT accurate.

REMEMBER…before generating your financial statements, there is a process you should go through to ensure the accounting reports you give your pastor, treasurer, or governing council are accurate and complete.

One of the most important steps is the bank reconciliation!

See how to reconcile your bank account and additional steps you should take BEFORE you start on your monthly, quarterly, or annual reporting …

Bank Reconciliation First then Financial Statements

(click for Vickey’s detailed steps )

I completely agree with Vickey. When I see regular bank reconciliations, the financial statements are almost always correct. When a organization does not reconcile their accounts, the financial statements are usually a mess.

Vickey also reminds us that credit card statements need to be reconciled too! And so do PayPal accounts. A credit card or PayPal account is really just a type of bank account with inflows and outflows. So reconcile them monthly as well.

 

Carol Topp, CPA

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How to account for a surplus in your nonprofit records

Female hand counting money on computer keyboard calculator.

 Does your homeschool organization end the year with a surplus? Congratulations! Now, how do you record that surplus in your bookkeeping.
Currently we are carrying money over into this year from last year. This money doesn’t have a name, we have it on a line that says, “Balance Carried Forward from 2015-2016” in our income column. Should this be called “Starting Balance,” or should this be named something else?
In our next two budget years, we will have a surplus. We are unsure what to call this surplus money. We do have a reserve fund already set up in  our budget; would this be the place to put the surplus money and then carry that reserve fund over to the income/expense section year to year?
Thank you so much for all your help!!
Heidi R in PA

Heidi,

You’ve hit on something very basic in accounting: how to account for accumulated money (aka a surplus).

The surplus is not income for the year so it should not be added to your other sources of income. The surplus is really an asset. It is cash sitting in your checking account.

Accountants created a special financial statement called a Balance Sheet to list the assets and liabilities. For nonprofits, it’s called a Statement of Financial Position, which I like better as a name.

stmtfinlposition

I recommend you create a mini balance sheet/Statement of Financial Position to the side of your income and expenses statement. Put the bank balance as of a certain date. List any liabilities (debts you owe) too. Make a note of the cash in the bank that is set aside as your reserve fund.

Your reserve fund is not an expense. It is an asset (cash in the bank). It should be mentioned in a note on the Statement of Financial Position as a reminder to your board that although the money is in the bank, it’s not supposed to be spent.  It’s held in reserve for emergencies.

Cover Money Mgmt HS Org

I give examples of financial statements including the Statement of Financial Position in Chapter 4 of Money Management in a Homeschool Organization

I hope that helps,

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

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What financial reports do we need to generate monthly?

spreadsheetpen_istock

Hi Carol,
We have purchased QuickBooks and our treasurer is working hard to learn  the software. What financial reports do we need to generate monthly?  We need these reports to be a simple process.The Balance Sheet and Profit and Loss statements in QuickBooks looks overwhelming.

Hilary S.

Hilary,

QuickBooks  can be as simple or as complicated as it needs to be. The reports your treasurer generates is based on what the board wants to see.

When I was treasurer, I gave my board a Profit and Loss statement.  They really liked to see the budget in one column and actual income and expenses in another column.  Then they could see how we were doing compared to our budget. This report can be generated in QuickBooks as a Budget Report.

I also created a mini balance sheet.  I took the amount in the checking account and then listed payments to be made.  This gave the board an idea of how much cash we had on hand and where it was planned to go.

If the stCover Money Mgmt HS Orgatements in QuickBooks are too overwhelming, then perhaps you’re not using QuickBooks correctly.  I frequently see QuickBooks users make their Chart of Accounts too long.  Then the Profit and Loss becomes 2-3 pages long.  I recommend that a Profit and Loss be kept to one page or less.

My book Money Management in a Homeschool Organization could be a big help to your treasurer. It has tips, samples and lots of examples.

 

If your treasurer would like my help in setting up QuickBooks, I’d be happy to help.  She can e-mail me with what needs to be done and I’ll give you an estimated cost.

I hope that helps.  I wish you the best of success!

Carol Topp, CPA


Want more tips on managing money in your homeschool organization? Sign up for my email list and I’ll send you my list of “best practices.”

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Embezzlement: Could It Happen in Your Homeschool Group?

thief_stealing_credit_card_400_clr_7276
From the Ohio Society of CPAs comes this warning:

Small nonprofits ripe for embezzlement

They’re often diligent, caring workers, and yet tempted by seemingly easy cash.

Working on the inside, thieves can hit school groups, athletic leagues and churches, especially when they’re surrounded by trusting colleagues and loose security.

And according to one expert, because of the disgrace and embarrassment that the crime brings an organization, their transgressions often are not reported.

The median loss to fraud for religious, charitable and social-service organizations was $106,000 last year, according to an annual survey by the Association of Certified Fraud Examiners. “We estimate that organizations lose about 7% of their net worth to fraud each year,” said Scott Patterson, the association’s spokesman.

“There are so many people doing the good work that nobody steps back to say, ‘Should we begin looking at ourselves. We’ve grown. We better put some checks and balances in,'” said Gary Zeune, a fraud expert whose speakers bureau, “The Pros and Cons,” travels the country. “The only people who can steal you blind are those you trust and who don’t have controls.”

Smaller organizations, such as school parent-teacher organizations, are often vulnerable because neighbors and friends are reluctant to offend by suggesting that dishonesty is possible.

“This is typically mothers stealing from their own kids,” Shaw said. “The kids are the shills out there selling cookie dough or doing the walk-a-thon, and the mothers are stealing it.

“If the board is too embarrassed to have checks or balances, they need to have a new board,” she added. “But if you’re an honest person, you shouldn’t be insulted by having a second set of eyes.”

I’m sad to hear about embezzlement taking place in a homeschool groups, but I know from homeschool leaders that it can and does happen!

How can you prevent embezzlement?

1. Sign up for my newsletter (upper right corner of the website) and receive my report “Best Financial Practices for Homeschool Groups.” If you already belong to my mailing list and still want the report contact me and I’ll send you a copy.

Cover Money Mgmt HS Org2. Buy Money Management in a Homeschool Organization and read Chapter 9: Fraud: It Couldn’t Happen to Us. I outline some guidelines for groups to avoid embezzlement such as:

  • Have a separate checking account in the organization’s name
  • Appoint a treasurer
  • Have bank statements mailed to the board chair, not the treasurer
  • Have the board chair, not the treasurer to sign checks
  • Require regular financial reports
  • Prepare a budget

Keeping you safe,

Carol Topp, CPA

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Aplos Accounting for Nonprofits: Better Than Quickbooks?

 

I just read a review of Aplos Accounting by Vickey from FreeChurchAccounting.com.

She writes,

One of the great things about Aplos software is that it is made specifically for nonprofits and churches. Aplos was designed by a CPA/Executive Pastor so each section of the software was made with a non-accountant in mind so it’s simple to manage you organization’s accounting even if you don’t have any accounting experience!

Aplos software is set up like a check register so entering transactions is just like entering payments and deposits in your checkbook. You can also import your transactions through the bank integration module.

Read Vickey’s full review of Apolos.

The software is cloud-based, not desktop-based so it’s easy for a new treasurer to take over. It’s also possible for several people to access the financial records including an accountant (like me) who may help your organization prepare the annual IRS Information Return, Form 990.

Apolos charges $25/month and Vickey offers a 25% discount for the first 6 months.

They also offer a Quickbooks buyback program.

Check out Apolos Accounting with a 15 day trial.

 

Carol Topp, CPA

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Homeschool leaders summer reading: Money Management in a Homeschool Organization

This summer I’m encouraging homeschool leaders to take time to become a better leader by reading through my books. This week I’m featuring my book,

When I originally published this book in 2008, it was a short 40 page ebook and had a horrible cover.  I was still learning and self-publishing was brand new!
MoneyMgmtCover
An update was badly needed and I tackled that project in 2014. The book ballooned to 131 pages and I subtitled it “A Guide for Treasurers.” I feel like I poured my CPA brain into this book.
Cover Money Mgmt HS Org
 Topics covered in this book include:
Chapter 1: Your Treasurer is a Gem!
Chapter 2: Checking Accounts Done Right
Chapter 3: Super Simple Bookkeeping Basics
Chapter 4: Show Us Your Books! Regular Reporting on Financial Status
Chapter 5: Establish a Budget: You’ll Thank Me Later
Chapter 6: Get What’s Coming to You: Collecting Fees
Chapter 7: Do I Have to Report This? Reimbursement Policies and Avoiding Taxes
Chapter 8: Using Software to Stay Sane
Chapter 9: Fraud: It Couldn’t Happen to Us
Chapter 10: Need More Money? Easy Fundraisers for Homeschool Organizations
Chapter 11: Risky Business: Insurance for Homeschool Groups
Chapter 12: Paying Workers: Hiring Employees and Independent Contractors
Chapter 13: Homeschool For Profit: Running a Homeschool Group as a Business

Here’s a special for the summer. Buy Money Management in a Homeschool Organization for 25% off. Get the paperback version for $7.50 (usual price $9.95). The ebook price is only $3.99.


Order Money Management in a Homeschool Organization paperback
Order Money Management in a Homeschool Organization ebook in Kindle or pdf

 

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