 In this presentation, we'll take a look at the closing entries or the closing process for our not-for-profit organization. Let's get into it with Intuitz QuickBooks Online. Here we are in our not-for-profit company or organization dashboard. We're going to first go over to our Excel worksheet to see what our objective will be. Now, when we think about this from a journal entry standpoint, you'll recall that we entered basically the day-to-day transactions in the trial balance up top in cell or row one and we entered that information here. We then took the ending column that was broken out and we have this information that was entered. It was entered in terms of the expenses, how it would normally be entered by nature, salaries, expense, telephone, and so on and so forth. We took those ending numbers and then put the beginning numbers over here so that we can reallocate our expenses. We didn't have to do this in QuickBooks because QuickBooks, we did this with the classes, but in terms of the Excel worksheet, we reallocated the expenses from being in there by nature to being in there by function. Now we have them in there for what they're used for, the programs and the admin services. We also took some items or income out of a restriction and made it unrestricted. We unrestricted some of the assets because we had used them and specifically the education to unrestrict it. Now what we're going to do is do the closing process. We're going to go down to the closing process. Normally QuickBooks really helps us with the closing process. QuickBooks will basically, if we say like 1231 is the year end at the end of the year, December 31st, then at the beginning of next year it will automatically close out and that's what we talked about with the closing process, the temporary accounts, the income statement accounts in essence, to the equity section or the balance sheet for a not-for-profit for the net assets section. So that's great. It really does that for us. The problem is there's an added wrinkle in the process because normally you could think about this and this would be any type of organization. You could think of it as a whole. That would be a sole proprietorship, a partnership, a corporation. You could say, all right, well the net income is going to then be taken and the net income is going to roll into the equity section. And if you think about everything as a whole, that's correct and no problem. However, there's a bit of a wrinkle depending on what type of equity account we have. We've talked about partnership accounts. The wrinkle is we need to allocate to the equity accounts to the proper partner capital accounts. If it's a corporation, we've got retained earnings versus the investment, the common stock and whatnot. For the not-for-profit, the wrinkle is that we got to break it out between the net assets that are restricted in some way and the net assets that are not restricted. And if you think about this, what we're going to end up is a post-closing trial balance which all the income statement accounts are gone. You could think of it all as just a balance sheet. If you think about this as just a balance sheet, what's the purpose of the balance sheet? We know that we have assets up top. These are the assets and then we have the liabilities. Assets minus the liabilities in this case add up to the 278,900. That equals the equity. Assets minus liabilities equals equity or net assets. The net assets are 278,900. So you can think of the net assets then the equity section as basically what the worth of the company is, what the value of the company or organization not-for-profit is in this case. So obviously if it's a not-for-profit organization, everybody that's a member of the organization is looking at the equity section and saying I want to allocate that money the way I want to allocate that money, right? That's what people are going to try to lay claims to to say we should spend this money and this, that or the other way. So what we need to do then is in this net assets is we need to say, okay, which of these net assets have already been laid claim to, have already been designated in some way, shape or form, and which of them are unrestricted, which people are going to can, you know, fight over and try to figure out, you know, how they could spend it the way they want to spend it type of thing, right? So we need to be breaking these out. Now, when we did the income statement, how are we going to do that? When you roll over the income statement, usually what you could think of is basically the net income just rolling over into the equity section. Similar process here, but we're going to pick up the items that are with restrictions and without restrictions. So you can see the contributions here, for example, are a restricted item, I'm sorry, I have no restrictions. And the default is that there are not restrictions. So we're going to take all the unrestricted items, which are going to be here unrestricted items, and then these two accounts has a has a restricted portion and an unrestricted portion. Here's the unrestricted portion. We're going to take those and roll them out into the equity section. They're going to go into the equity section without restrictions. And then the restricted items here and and the restricted item down here is going to roll out into the equity section with restrictions. Now you can see this in a journal entry format. If you wanna consider the journal entries to on how this is done. So if I scroll up top, here's the journal entries. Now I won't go into the debits and credits on the journal entries. If you have the Excel worksheet, you should have the Excel worksheet or I will provide the Excel worksheet. You can take a look at it on how it's done from a journal entry by journal entry standpoint. But I won't get into that here. Note that if you look at the income statement or the statement of activities, the statement of activities here, you can also think about this statement which is kind of broken out by class as we'll see same format within QuickBooks. We'll use the classes to break these out between with restriction without restriction. And you can think of here the ones that this is gonna be rolling over into the equity section in a similar format here, right? You're gonna have the net assets, the net increase in this column, this column being the ones without restrictions that'll roll into the equity section without restrictions. This column being the one with restrictions that's gonna roll into the equity section that has the restrictions on it. So let's go over to QuickBooks and consider it from that angle. Within QuickBooks, let's go on down to our reports. So we'll go to the reports on the left-hand side, opening up our favorite two reports, that being the balance sheet and the income statement. We'll start off with the balance sheet. I'm gonna scroll back up top and I'm gonna take a look at this for January. So I'm gonna go from January 1st to 013120. We will run that report. And then I'm gonna duplicate the tabs. I'm gonna go to the tab up top, right-click on it, duplicate the tab. Going back to the report to the left and we're gonna go down to the report, back to the tab to the left, going down then to the reports so that we can open the income statement or the profit and loss or the PNL, whichever you'd like to call it and scrolling back up top, we're gonna be running the same date range January 1st through 013120, January 31st. We will then run that report. Now let's go back over to the balance sheet. Let's then close up the old hamburger and then hold down control, scroll up just a bit to that 125. We're concentrating now on the bottom line or the bottom of the report and that's gonna be the equity section. So you'll note within the equity section we have retained earnings and we have net income. The net income here is not something you would normally see in a balance sheet report because normally the net income would have rolled over into the equity section. QuickBooks is trying to help us by saying, hey, look, the net income for this current year that we're working in on is in this report, that's gonna be the 278.900. In other words, if I go to the income statement and I close it, I'm gonna close up the hamburger here and go to the bottom line of it that 278.900 is included on the balance sheet in the net income line. This net income is not an actual account. There's no account called net income. It's basically just putting that in there and it's trying to tell us that the net income is being pulled over. The account that it should be going into is retained earnings. It's gonna be the retained earnings is the typical account we think of now. Again, if it was a not-for-profit we wouldn't call it retained earnings would be called the net assets unrestricted or something like that. But in essence, the principle is gonna be the same. It's gonna roll into the equity section. Now, this is a bit of a problem, however, because we don't wanna see it in just one number of the net income. We wanna see it rolled over into the equity section and broken out between our categorization, the categorization of, as we saw in our balance sheet over here, the categorization of the net assets with restrictions and the net assets without doing a restriction. So we wanna see that categorization rather than just one account. We'd like to rename the accounts rather than retained earnings to call it something like the net assets and then with restrictions and without restrictions. So if we see that then if you change the dates up top, like if I went up top here and I changed the date to 21 to the following year, run that report, there's no change to any other number cause no other activity has been entered. However, if I go down below here, now it's been moved from net income up to the retained earnings. So, and that's really the account that it should be put into. Again, we need to rename that account to have it called something more appropriate for a not-for-profit, which would be net assets of some kind, but that's where it should go. Then we need to think about breaking it out from the retained earnings account. So I'm gonna scroll back up top, I'm gonna go back in to bring this back to 2020, and then we'll run that report. And if we scroll back down, that puts it back of course in the net income, it's still in the equity section. Then if we go back to the accounts or the income statement, what we need to do then is think about the income and how are we gonna break it out? And so we could go up top and we could say, all right, well, if I look at our classes and we break out the classes, then run that report. This will in essence for this time period be breaking out from the restricted items and the unrestricted items. So that's basically how we need to roll this thing forward. If we have the bottom line for the restricted numbers is now at the 234-656, that's what should be going into the restricted item for the capital. And then over here, we have the amount of the unrestricted, the unrestricted being the 44-244. Now again, the full amount, the full amount, the 278-9, is gonna go into, we're gonna call it unrestricted. That means we need to basically make a journal entry to break out the portion that is restricted into its component part. So we need to break out then, we're gonna make a journal entry taking the restricted item out of the equity section and then reallocating it to another equity account, which will be unrestricted. All right, so let's take a look at how this will be. We're gonna right-click on this tab up top. I'm gonna duplicate this tab. We're gonna go back to the tab to the left and now let's take a look at our equity accounts. I'm gonna open up the hamburger. Gonna hold down control and scroll down just a bit to get us back to that 100% so we don't, because we're gonna be working within the accounts, not with the reports, we're gonna go to the accounting down below and we wanna take a look at our chart of accounts. Now I wanna close up the hamburger. I'm gonna consider the equity accounts down here. So I'm gonna say, all right, equity accounts, what do we have down here? We've got the equity accounts, this retained earnings, that's usually the account that's gonna be rolled over into. That's gonna be like the equity type of account that's gonna be rolled over into. So I wanna rename that to our primary equity account. So what I'm gonna do is I'm gonna say, let's edit this one. Now we're gonna have to keep it as an equity type of account. So we're gonna keep it as an equity type of account. We're gonna keep it as our retained earnings account because it's gonna roll into, basically that's what it's gonna roll into. I'm just gonna change the name to be more appropriate for a not-for-profit. And this is gonna be, we're gonna say net assets and then I'm gonna say unrestricted. So that's our primary net asset account. In other words, that's the one that the default of net income will roll over into. And our default is to have it unrestricted and less specified otherwise. So that's gonna be our primary account, that's our new kind of retained earnings account that's gonna naturally roll into, net income rolls into it. So then we're gonna say save and close. And then I'm gonna make another equity account. So we're gonna go back up top and say I'm gonna make another one. And this is gonna be also an equity account. So we're gonna say this is an equity account. So let's, and we wanna make it equity. And this one is gonna be not the account that it normally rolls into because QuickBooks doesn't really know enough to roll it in, to roll them both into the proper equity account. So what I'm gonna do is pick another equity type of account, so I'll just call it owner's equity and I'll make this the net assets. And this one is restricted, restricted, net assets restricted. And so then I'm gonna say save and close. So there's our two accounts. So if I go on down below, there's gonna be net assets restricted and unrestricted. Now it's all gonna roll into the restricted automatically. So what I need to do then is a journal entry to say the total amount that rolled in here is gonna be the total for the net income, the 278.9. It's gonna roll into unrestricted. Therefore I need to make a journal entry to pull out the restricted items, the restricted component, the restricted part of it. So the restricted part, we can run this report and say the restricted part is gonna be this 234.656. That's what needs to go into the restricted part. So we can do that. I'm gonna go back on to the chart of accounts tab and I'm gonna select the dropdown and we're gonna do this with a journal entry. So we're gonna select the dropdown on the new. We're gonna go into other. We're gonna make a journal entry this time. So we'll make a journal entry. I'm gonna make it as of the end of the period. So the end of the year, which is gonna be 1231.20. So 1231.20. And then I'm gonna pick up the accounts. Now the accounts are gonna be the net assets, the net assets that are going to be restricted. The net assets, well, let's actually pick the unrestricted first. The unrestricted net assets need to be going down. So if we think about our debits and credits here, the equity section is a credit balance account. The net assets that are unrestricted are too big because all of our income went in there. It needs to go down. So we're gonna do the opposite thing to it, which is a debit. So we're gonna debit this one. Now if you go the wrong way with it, it'll be easy to see because you'll go to the reports and it'll be going the wrong way. And then you'll go in here and just change your debits and credits. So we're gonna say two, three, four, six, five, six. And this is going to be two, two, all right, that's not description. To break out restricted portion, something like that. And then the other side is gonna be net assets. And this is going to be restricted then, net assets restricted. And then there we have it. So that's the restricted ones are gonna increase. Again, equity has a credit balance. We need to increase it by doing the same thing, which is a credit. Now note I've recorded this as of the end of the year. Let's do it as of the end of the month. So I'm gonna put it as of the end of January. So same process at the end of the year. You can think of the end of the year, the end of the month, but we've done a month here. So I'm gonna do the end of the month. Okay, and then I'm gonna say save and close, save and close, and I'm gonna say it's okay. It doesn't have a class because these are gonna be balance sheet accounts. Then I'm gonna go back on over to the balance sheet tab and then let's run that report, update the balance sheet report. Then I'm gonna hold down control. I'm gonna scroll up a bit, getting it back up to that one, two, five, and then go down to the equity section. Now note, we still have kind of like that issue where we have the net income, which is still rolling in. I can't do anything about the net income because that's not an account. That's kind of messing us up quickly. So it's trying to help us, it's kind of messing us up. But so we have to think about this in terms of, I'm gonna pull up the trusty calculator. If we pull up the trusty calculator and make it a little smaller, just a little smaller than that, then the unrestricted component is gonna be the 278900 minus the 234656, and that's gonna be the 44244, and the restricted component then is this 234656. Now, like if we roll this over to the next year, then this net income will roll into properly the unrestricted portion. So note that if I change this all the way out to 21, because it's by year here, that's what the net income kind of works as. That's how it has to work to let that automatic rollover work properly. Then it rolls over. Then it rolls over and you see what we expect to see, what we want to see. But until the end of the year, it's always gonna be in the account there. So we gotta just be okay with that. That's fine. It doesn't bother us. That doesn't bother us. So we know that if we wanna display this, however, for somebody else, then we could export this report basically to Excel and then just remove the net, just net these items out in Excel. That's how we would basically have to do this, or we could make a condensed report and basically a summary report to show equities in this format. But we really wanna see the detail. We wanna see the restricted and unrestricted, because like I say, when you talk about the board of directors, that's what they're gonna fight over, right? They're gonna, you know, I wanna spend the money this way. I wanna spend the money that way. And we have to say, hey, look, this money's basically already spent. You know, you can't, you know, this money is what it is. We have to spend it in a particular way in the unrestricted portion. That's the one where people can kinda, you know, try to get spent one way or another. So we'll talk a little bit more about the formatting of reports in a future presentation. But just note that if you look at the profit and loss, then if I go back to the profit and loss by class, and I close this out, then the item, these classes will tie out, for example, on the restricted items, will tie out to basically what should go on the balance sheet. Now also note that if you're running more than one year, then we're gonna have to go back in time. We're gonna have to run the profit and loss to look at the restricted items more than a year back in time. So when we're looking at one year back in time, we can look at the activity, and that'll help us to allocate the rollover of the net income and break it out between the two components as we've done here. And then when we think about, you know, the balance sheet for the life of the organization, what's restricted, we're gonna have to run the balance sheet for a longer period back to see what the total equity should be. In other words, if we had multiple years, if we had two years, then I'd have to bring this back to 2019, 2019 for the beginning balance in order to see the activity to see what the restricted item total should be for basically the equity section on the balance sheet. But in the bottom line, the total restricted items are now the 234, 656. And again, this is for the life of the organization. If we go to the balance sheet, the restricted items are the 234, 656 will match there. Now we also can see this as we remember with our reports, if we're tracking the restricted items by basically job or sub-customer, you can then open up another P&L, profit and loss report, and we could say, okay, let's run this by job if we're tracking it in that way. And then I'm gonna scroll back up top and run this by basically customers. And then I'm gonna say, and then again, we'd probably wanna run this for the life if it was more than one year, I can put this back to 2019. And then I wanna customize this item to look at the jobs. I'm gonna, not by class, we wanna customize it by customer in this case. I'm gonna use all the customers that have a sub-customer. So if I go down here, government grants, the long-term project, and the restricted time, we want those items. And then if I was to run that report, and then, so now we've got our grants and so on our restricted items up top. And then we've got our long-term project and then we've got our time restriction. And so we could track those items one by one. And the total, this 234.656, again, going over to the balance sheet is the 234.656. So we should be able to track that out. But remember the balance sheet is for the life of the item. So when you have multiple time periods, this multiple years will roll into the balance sheet. And when you're supporting that by the job reports or the profit and loss reports, then you gotta run basically the P&L for the life to be able to see what's on the balance sheet. Okay, so that's gonna be it for now. Let's get out of here.