 In this presentation, we will record a transaction related to net assets that are released from restriction. In other words, we have some kind of restriction that is in place, whatever has to occur to release the assets from restriction so that they can then be used within the organization has happened. We're going to record that transaction to release the assets from the restriction. Let's get into it within to it's QuickBooks Online. Here we are in our not-for-profit company or organization dashboard. Let's start off by going to our Excel worksheet to see what our objective will be. We're in the 10th tab in the Excel worksheet and we're going to be moving down to the second set of numbers. You'll recall last time what happened is that we're thinking about the expenses I'm going to scroll over to the reports and we have them broken out in two formats. The statement of activities where we have the expenses by function and then we also broke them out in a separate schedule by nature so that we have them by nature up top. Now if you think about a standard trial balance, how would we do that with a standard trial balance? Notice up top we have our trial balance that we have been working on and we have the information word it's normally broken out in a trial balance and that is by nature, by expense category in terms of rent, salaries, utilities, and so on and so forth. If I want to then put it into a grouping by function in a trial balance, I basically need another trial balance or another column or something like that in order to do that. To see that in our worksheet, we took this in a trial balance below if you want to see this in a worksheet format. We won't do this but just to tell the story here, we took our ending balance numbers, here's our ending balance numbers and the trial balance we've been working with, moved them down below. Those are our beginning balance numbers here and then in the expenses, our expenses down here that are broken out by nature, we had to add accounts then that are going to be by function and then we reallocated the expenses to be allocated on what they're used for, the public health, the community service, the management in general, and the fundraising. So down here, you can see the journal entry for that. Again, we're not going to go into detail on this because of course in the Quickbook system how do we do that? We do that with the use of the class function and therefore we have another dimension that we can kind of work with that will show us that detail without having to show a journal entry. You can see the difference between a two-dimensional and kind of three-dimensional screen and what QuickBooks is doing. QuickBooks will basically, you know, that looks a little bit more kind of magical that a QuickBooks is able to do that once you add another column or dimension or classes to the function. So this would be on more of like I would think like a two-dimensional type of thing where we just have a trial balance and accounts in one column, you know, and then obviously in QuickBooks when we have the classes you can break those out. OK, so why am I telling you that story? Because now we're going to use this trial balance to then unrestrict an item. OK, so now we're going to take items that were previously restricted and say that there has been something that has been met to then release items from restriction. So for example, we're going to say that in this case we have the items that were restricted for the government usage. We're going to say they were restricted for educational purposes. And now we have had expenses related to educational purposes. And therefore we need to remove these items from restricted. They were previously put in a restricted category and now we're going to be removing them from the restrictions. Now, again, if you look at a two-dimensional like trial balance, how are you going to show that we're going to have these two accounts that are basically going to show that down here. They look the same except that it says net assets released satisfaction of purpose restriction, meaning there's been a satisfaction of whatever the restriction was, which will allow us to unrestrict. And then it says without donor restrictions. And this one says same thing with donor restrictions. So these two accounts will always be mirroring each other. They're going to be basically on the income statement because they're going to roll over into what would be kind of like the equity section for a for-profit organization, the net assets section up here. And then what's going to happen is the one without restrictions, you can think of as the one that's basically going up. So we're on the income statement accounts. Credits are kind of good down here. So we're kind of increasing this is like an income account that's going up in the income direction. This one right down here, we're going to say this is the items that were restricted that are going basically down. So the restricted items going down or you can think of these as expenses or like a negative income going down with a debit on the income statement. This is a credit going up. Now, the net of these is that the net effect will be, of course, no, they're going to cancel each other out. So if I go down below and I look at the calculation of net income, there's no net effect from that transaction. So why would we do it? Well, when we look at the statement of activities, what we're doing is adding that kind of like other dimension on the statement of activities. And we're able to say then that within the statement of activities, we have the contributions and then the items without restrictions have now going up, right? We've unrestricted some items because we've spent the money in such a way that's going to be able to unrestrict in this case for the education, which was the restriction term for the use of the grant money. So that's been done. So now we're going to say that we in essence are increasing like kind of like a revenue account increasing the unrestricted items. And then on the other side, on the items with restrictions, we have the contributions that have restrictions. And then we're going to reduce the restrictions. So the items that have been restricted over here, in other words, the items that have been contributed that are restricted have now been unrestricted and reduced down to here. So we're just basically moving it from one column to the other column when you see it in that third kind of dimension kind of format. And then, of course, you can imagine this income statement accounts are going to be rolling into the equity accounts. So the equity accounts up top are equity for a for-profit net assets here. And then the net assets accounts will have then the net assets without the restrictions and the net assets with restrictions. So that's going to be tracking the book value of the company in essence, the assets minus liabilities, the assets over the liabilities, the stuff that the not-for-profit company can basically spend. And that will be tracked then by items that are restricted, the items that are not restricted. And the items that are restricted, we're further breaking out and we're tracking those by basically the jobs feature and we're tracking them using that both the jobs and the classes feature within QuickBooks. So anytime we can unrestrict something, we want to do that. Anytime we spend money in such a way that could allow us to unrestrict, our assumption then is that the money that we spent, in this case for education, was the restricted money, right? So that's going to be kind of our mindset. Our mindset is not that obviously if we spend money on education and we had a restriction for education, we're not going to say, oh, that money came out of the non-restricted money, right? We're going to say anytime we spend money on something that had a specific restriction for it, our assumption, our mindset is, well, we spent the money that was restricted and now have unrestricted it, right? So we've spent money on something, if there was a restriction related to it, such as education in this case, we spent money on education, we will then unrestrict the restricted money. Our goal as the not-for-profit organization is to unrestrict the money whenever possible so that we have more flexibility to use that money. So that's going to be our objective. So how are we going to do this in QuickBooks? We're going to be able to use the class feature to break these items out between restricted and unrestricted. We'll also set up two accounts in order to show this information in a similar way as we saw with the trial balance. And then with regards to the restricted items, we'll be able to track the actual restricted items. That's why we want to see them by category so we know when the restrictions are met and if there's any still restricted items within that particular category. All right, so let's go over and do that. I'm going to go back on over to our Excel here and so we could see the journal entry. Let's go back then to QuickBooks. Now you might say, hey, that looks like an unusual journal entry. You would think you would do that with a journal entry, right? You would think you'd have to do that with a journal entry. We cannot do it with a journal entry, however, why? Because the journal entry doesn't have that the job costing line that we need. So if we're going to be using that function, if we're just using classes, then you may be able to do it with just a journal entry. But if you want to use the job costing feature that we've been setting up to see that the jobs in two ways, in other words, the restricted items in that format, then we can't use the journal entry because we don't have that option. So we need to then use some type of form. So we're going to do a similar, we've seen a similar process in the past. What we're going to do is you can use a check form or an expense form. I'm just going to use an expense form and they're basically the same form. There's just no check number on the expense form, but this would generally be the form that you use for money going out. And then there's not going to be really any payee. So this is kind of like a miscellaneous payee. So I'm just going to set up miscellaneous for the vendor and save. And again, we've seen a similar process of this, not with the expense form. I believe we saw this with a receiving money form, money coming in type of form, in which case we had a zero kind of transaction even though we're using the receive money type of form. So we're going to say that this is going to be using then the clearing account. So we're going to say we want to use the cash clearing account because there's going to be a zero transaction. We're just using this to enter the journal entry. Our major reason for using it is because we want this information down below with the classes and we also want the customer and project item over here. So what we're going to do is we're going to set up these accounts. So I'm going to set up this account. We have the net assets released, a satisfaction of purpose. We're not going to be able to put that full account. So I'm just going to call it net assets release unrestricted and restricted. So I'm going to go back on over here and I'm going to say that this is going to be a new account. I'm going to say net assets released. And then I'm going to say, I'll just put unrestricted, unrestricted. Now you might say, hey, look, I only need one account called net assets released. And then when I apply out the classes, then I would be okay. I really only need one account, but I like to have the two accounts still because to me, again, that's another double check. It's another double check. I should see these accounts being equal and opposite to each other. So I tend to like having both of them there. So I'm going to create it as an expense type of account. We'll select the dropdown up top and I'm just going to create it as an other business expense. And this is going to be the name. That's the key component. That's what we want. I'm then going to say save and close. So save and close and then tab. And I'm going to put the amount. Now this is going to be negative 128504. And you might get a little bit confused about which ones are negatives and positives. If you go the wrong way, then that's okay because then you just go back in there and you could go the other way. But if you think about it in terms of, well, what does it mean to be a check and then a debit and credit? If this was a check or if this was an expense form, then you would think that the cash would be going down when you write the expense form. So that would mean cash would be credited. That's what the expense form does. And that means the other side would typically a positive number would be a debit on the other side. So a positive number over here would be a debit. Now this is the unrestricted item, which we could think of as kind of like, a credit's going to increase net income. So I want this to basically be a credit and a positive number would be a debit. So I want this to be a credit. So I have to put a negative number here. So it shows up basically as a credit. So you could think about that and mow that over, but or you could just copy the format here. This is what we're going to do. It's going to be a negative 128504. And then the class is going to be unrestricted. So this is going to be the amount that's going to be increasing the net income. It's going to be coming out of restriction and increasing net income. So we want this to be in the unrestricted class and the columns. So when you imagine the columns, it's going to be unrestricted. So we're going to choose unrestricted. And then the second one, I'm going to create a similar account, slightly different name though. So this is going to be net assets released. Released, but this one is going to be restricted. Restricted. All right. And then tab. And we're going to set this up an expense type of account. I'm going to make it down here and other business expense account. Net assets released and it will be restricted. So then I'm going to say save and close on that one. And then tab, tab. And then this is going to be the 128504. And this is where we want to assign the job. So we were releasing this from restriction. This is going to be decreasing the restricted item. And therefore we wanted to also to be decreasing the job here. So the job, which we set up and we said this time, it's going to be the government grants for education. So we used it for education. We're going to apply to the government grants item here. And then we're going to say that the class is going to be restricted here. So the class is restricted. It's coming out of the restricted item. And notice on the restricted item, we also have the subgroup of the government grant and education. So we're tracking that subgroup in two different ways. One with the classes, one with basically the jobs feature. I'm also going to change the date up top. So let's make the date 0101 let's make it 013020. So 013020. Okay, so what's this going to be doing when we record it? Notice there's nothing happening up here. So we're using an expense type form, which usually decreases the cash account not happening down here, which is going to make a journal entry. It's going to set up this net assets released from restriction, which is set up as an expense type of account. And this one is actually going to be accredited, which will basically increase the net income by the 125504. This one is going to be a net assets released from restriction, another expense type account on basically the income statement. And this one's going to be a debit, which will basically be decreasing the net income. These two accounts then canceling each other out for the net effect. However, they are applied to different classes. And therefore the one that's unrestricted, it's going to be increasing the column of unrestricted. The one that's restricted is going to be decreasing the net income for the column of the restricted items. And then we'll also be tracking this information by the job for the government job when we run that report as well. So we can track the type of restriction that is being released at this point. So let's go ahead and say save and close and check this out. So we're going to say save and close. And then we're going to go to our reports. So we'll go to our reports here. Let's take a look at our P and L, the profit and loss. We're going to open up the old P and L. Going to close the hamburger. I'm going to scroll up top. We're going to make this from January. Let's just make it from 013020. So the month of January. Let's make it 0131, the end of January. D-D-D's here. And then run that report. Then I'm going to hold down control and scroll up a little bit to get to that 125. So let's get to the 125. And then if we scroll down, we'll see our two accounts here. So there we have them, net assets released, restricted and net assets released, unrestricted. Okay, so they're going to net out so no effect on net income because they're going to net out when we see it in this one column type of format. However, if I break this out by class, so if I go back up top and I say, all right, now let's check this out by class. And so we're going to go to classes. We're going to run that report again, running the report again and now we see those accounts. Net assets restricted is going to be here in the government's education. So it's also breaking out basically the type of restriction. So it's an expense. So here's the profit, here's the expense and then it's going to be decreasing. So this amount is decreasing that amount. It's also in the total restricted. So here's the total restricted items that then going down with this number on the net income. So it's decreasing, it's increasing the expense in essence, you can think of it or decreasing. And then the other side is going to be on the restricted. So here's the restricted item. And if we look at the total restricted then, I'm sorry, the total unrestricted, then this is the income, the 237,000. Down here it's in like this expense category but it's basically an income number, right? It's basically an income number because it's showing here as a negative expense. So if I then scroll down, then we see it down below and it's basically increasing the net income for the unrestricted items. Now you'll note, I put it down here in the expense area and you could also think of it up here if I go back onto the reports that you could put it up into the revenue. So if I look at the statement of activities, you could put it up into the revenue items as well. So if you wanted to make those accounts, revenue type of accounts, you can do that as well. So same kind of idea. I'm gonna let's check what that would look like. Right click on this tab, duplicate this tab and then I'm gonna go back to the tab to the left. And if I wanted to make those revenue accounts, I can do so fairly easily, really easily. I'm gonna hit the hamburger up top. We're gonna go down to the accounting. We're gonna go to the chart of accounts. I'm gonna hold down control and scroll down to get back to the 100%. So we're at 100%. I'm gonna close the old hamburger and then let's go down to those expense items. So we're gonna go down to the expense items down below and we have those new expenses that we have set up. Here they are. So let's go ahead and edit this one. Let's change the accounts type from an expense to an income type of account. Let's edit this item and let's say, let's make it an income type of account. And so we'll do that. And then I'll say this one, other primary income, that's fine. Net assets released. So I'm gonna say save and close on that one. Changing the type account may affect your accounting. That's fine. So we're gonna say yes. And so there is that. And now let's take a look at the other one, which is gonna be down here. Net assets released. Let's change that one. So I'm gonna say edit and we'll change it from an expense to an income type of account. And then say let's make it other. And that looks good. And so I'll say save and close and yes. And then let's go back to our P&L profit and loss and just run this again. And we should see it on the top line items now. So let's run this report again. Let's close up the old hamburger so that we can see this item. So now we have it up here in the income line. And so on the government grant, which is the restricted item, it's a negative income now. And now you can see it decreasing here. It's in the total restricted items decreasing here as well. And then on the unrestricted side, you can see then it's increasing basically the income side of the unrestricted items. So you can then imagine that we can break this out and see this in a two column format by collapsing the columns down to, without restrictions and two restrictions, we have to use Excel to do that. But, and we'll do that later. And then we can see and we can see the transfer between these two. And then we can also see the breakout, the breakout that we have of the restricted items and the unrestricted. Now we have the restricted items being shown here by class as well. These are restricted. Here's the specific type of restriction. You can also do this if you wanted to not include this format in the class feature, you can use the other format, which is basically the job costing feature. So let's go back to the tab to the left to take a look at that. We're gonna open up the hamburger. I'm gonna go back down to the reports, back to the reports. And then let's open up the LP and L once again. So we're gonna open up the profit and loss again. And then I'm gonna close the hamburger. And it's still including January. So we're basically looking at January, nothing's after January. So I'll keep the dates as are. I'm gonna select the dropdown. And we want to this time look at it by customers. So look at it by customers, run that reports. And then we're basically considering everything that has a sub customer. So everything that has a sub customer are the ones that we want to look at. So if I went up top and customize this report, I'm gonna say, all right, let's filter this reports and say, let's filter this thing by customer and then select the dropdown. And we want all the ones that are the sub customers. So we've got the government grants, government grants, government grants. The long-term project has the sub-coupler and the time restriction as well. So there we have those items. And let's go ahead and run that report. So if we run that report, there we have it. Now we could see the particular job item this time in a job format, decreasing this one for the government's grants. So there it is decreasing the government grants. And then of course we see the total over here for all the restricted items, the total then. We could see it decreasing the total of all the restricted items. And this now being the 234.656 tying out to if we go to the profit and loss on the other side, the profit and loss over here, the 234.656 for the projects. So in other words, if you just had all the restricted items going to one class for restricted items, then you can simplify this report and break out the detail of the classes of the restricted items with this other report, which may be easier, right? The bottom line of this report would always tie out to that one line item. Also note that when we will take a look at the closing process soon and notice that these projects, these restricted items are gonna roll into the capital account like we saw. So when we think about a project that's rolling over to the end of the year, what we're gonna have to do to see the life of the project is basically just simply run this report across the year for more than a one year type of time period to see where the project is at for the life of it so that we can tie out to the equity section, right? To the capital account on the balance sheet for the net assets. We'll talk a little bit more about that when we think about the closing process. But in any case, that's gonna be it for now. Let's get out of here.