Chapter
11
X
Net Assets / Equity
The net assets of a parish represent its financial worth. These values are calculated as
the excess or deficiency of assets over liabilities. Net assets are found on the Statement
of Financial Position (Balance Sheet), along with Assets and Liabilities. The net asset
balances may be categorized into as many as four classes depending on the existence or
absence of donor restrictions or board designations. The purpose of this policy is to
provide guidance in categorizing, recording and reporting parish and school net assets on
parish financial statements or, in the case of an independent regional school, the school
financial statements.
ACCOUNTING POLICY
The Archdiocese of Saint Paul and Minneapolis has defined a standardized chart of
general ledger accounts for use by all parishes and schools. Separate accounts are
established for unrestricted, temporarily restricted and permanently restricted net assets
and the related income and expense accounts. Unrestricted net assets may also be
designated for specific purposes by leadership. This chapter is closely aligned to Chapter
12, Revenue Recognition.
SCOPE
When a parish or school receives a donor contribution or special gift, it must be classified
into one of the following three net asset categories; unrestricted, temporarily restricted or
permanently restricted. The reasons for classification are to establish proper accounting
treatment for the gift and determine appropriate financial statement disclosure.
In order to choose the proper category for a donation, staff must know the distinction
between the category labels designated and restricted. Designations are not necessarily
related to a specific gift and are made by authorized leadership. Restrictions are made
by a donor at the time of the donation and can only be changed by communication from
the donor.
The donor has the most powerful influence over a gift. He or she may restrict a gift for a
particular purpose. Leadership, including the pastor, does not have authority to contradict
or change a donor restriction without the donor’s permission. As long as there are no
donor restrictions on a particular donation, authorized leadership may designate the
donation for a specific purpose. This designation may be changed or removed at a later
date as long as the change is authorized using the appropriate process. It is
recommended that a parish, independent or regional school develop a written policy
regarding receipt of gifts with donor restrictions and designation of gifts by leadership.
CHAPTER 11 – NET ASSETS/EQUITY
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Net Asset Categories
Listed below (in order from no restriction to greatest level of restriction) are the categories
for Net Asset classification.
Unrestricted Net Assets are donor contributions with no specific conditions or
restrictions. The parish/school can use the funds as leadership sees fit as long as the use
meets the parish/school’s tax exempt purpose. Examples include Sunday giving or a
contribution to the parish/school with no specific obligation or conditions. See journal entry
example # 11-1.
Parish or Board Designated Contributions (Unrestricted Designated) are
contributions without donor restrictions, but subject to leadership designations.
Leadership may decide to set aside unrestricted contributions for a specific use. An
example of an unrestricted-board designated contribution is a large contribution that has
not been restricted in any manner by the donor but the leadership decides to direct the
funds to a specific purpose such as a building project. See journal entry example # 11-2.
Temporarily Restricted Net Assets result from contributions given for a specific purpose
or for use in a specific time period. These restrictions can only be eliminated when the
funds are spent for the restricted purpose OR in the case of a time restriction when the
appropriate amount of time passes. An example of a temporarily restricted contribution
would be a gift received by a parish for a specific program or project. Other examples
include capital campaign contributions and school scholarship fund contributions given for
use in a specific school year. Any unfulfilled restrictions should be reviewed by the pastor,
trustees, and finance council or independent/regional school board on a regular basis or at
a minimum, annually. If the restrictions are not fulfilled, a decision must be made as to
whether the funds must be returned to the donor(s) or if the donor(s) could be contacted to
alter the restriction. See journal entry example # 11-3 and # 11-5. Journal entries should
also be made if the restriction has to do with debt reduction contributions. The entries will
not be reflected on the Statement of Activities (Income Statement), only on the
Statement of Financial Position.
Permanently Restricted Net Assets result from donor contributions given to be held in
perpetuity. These restrictions generally cannot be eliminated through the passage of time.
An example of a permanently restricted contribution would be an endowment or large
donation where a donor prohibits the parish or school from spending the initial gift, but
allows spending of the interest/investment income associated with the gift. As a note, the
investment income from such a gift may also be temporarily restricted by the donor. In
these situations, the donor may require that these funds be held in a specific bank or
investment account so interest earnings may be tracked. See journal entry example
# 11-4.
Recording of Net Assets
Net asset recording and reporting processes vary depending on the level of
designation/restriction. See decision tree # 11-6 for an illustration to help determine the
classification of gifts.
Unrestricted Net Assets increase when unrestricted income exceeds unrestricted
expenses and decrease when unrestricted expenses exceed unrestricted income. The
CHAPTER 11 – NET ASSETS/EQUITY
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balance of net unrestricted net assets is displayed on the Statement of Financial Position.
See journal entry example # 11-1.
Restricted and Designated Net Assets involve more detailed recording and reporting.
Once the restricted gift is accepted or leadership designates funds for a particular
purpose, the parish or school has an obligation to track contributions against expenses
incurred.
Designated and Restricted Net Assets involve the following four steps for proper recording
and reporting.
1) Upon acceptance of a gift, the necessary general ledger accounts must be
determined. (See Chapter 3, Parish/School Chart of Accounts Structure).
These typically include revenue and expense accounts on the Statement of
Activities and a net asset/equity account on the Statement of Financial
Position. Net asset activity should be recorded in a separate fund or within
non-operating accounts.
2) As contributions are received and spent during any given month, the activity
should be recorded in the appropriate revenue and expense accounts. This
activity should be recorded in a separate fund or non-operating accounts.
This separation allows income and expense to be recognized without
affecting the bottom line of the operating income statement.
3) At month-end, a summary journal entry is made to update net asset
balances. The entry should adjust the balance up or down based on net
revenue and expense account activity during the month.
4) At each month-end (and year-end), a reconciliation to net asset balances
against detailed records is done as a part of the period end. See decision
tree # 11-7 for an illustration to help determine if a restriction remains.
As a note, processes outlined above may be adjusted for parishes/schools that wish to
reflect some designated/restricted revenues and expenses within their operating account
activity. In the case of a parish/school that budgets for designated revenue and/or
spending during the year, it may be more appropriate to show this activity within operating
accounts. Examples of this type of net asset treatment are school scholarship funds or
endowment fund revenues that are included in the annual operating budget.
Reporting of Net Assets
All categories of net asset balances are disclosed in the Net Assets section of the
Statement of Financial Position. In the case of designated and restricted gifts, the
numbers on the Statement of Financial Position represent remaining balances of restricted
or designated contributions (net of related expenses) in each net asset class, as of the
report date.
The Undesignated Net Asset portion of the Net Assets section on the Statement of
Financial Position represents the remainder of parish, independent or regional school
equity available for future operating activities.
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The Statement of Financial Position/Balance Sheet follows the following formula:
Assets = Liabilities + Net Assets/Equity
Please see Chapter 1, Important Concepts for more detailed information.
Revenues and expense activities related to Net Asset contributions are reflected on the
Statement of Activities. Generally, this activity is recorded in non-operating revenue and
expense accounts. However, under certain circumstances, designated fund revenues and
expenses may flow through operating accounts.
DEFINITIONS
Parish/Board Designated Contributions (Unrestricted Designated): Unrestricted net
asset that have been identified for a specific use, as determined by authorized leadership.
Endowment Fund: An investment fund set up by a parish, independent or regional
school in which regular withdrawals from the fund are used for ongoing operations or
specific purpose. Most often the principal portion of the endowment is permanently
restricted from use.
Leadership: Parish leadership includes the Corporate Board, the pastor, two trustees,
and members of the pastoral and finance councils. Parish and school leadership would
include the pastor, trustees, and school board members. Independent/regional school
leadership would include the pastors of sponsoring parishes as well as the remaining
school board. Also, the moderator (or canonical administrator) would be included if he
was not one of the pastors from the sponsoring schools.
Permanently Restricted Net Asset: An asset with a permanent donor imposed
restriction such as an endowment fund.
Statement of Activities (Income Statement): A financial statement that measures an
entity’s financial performance over a specific accounting period. Financial performance is
assessed by giving a summary of how a parish and or school incurs its revenues and
expenses. It also shows the increase and decrease in net assets incurred over a specific
accounting period, typically over a fiscal quarter or year.
Statement of Financial Position (Balance Sheet): A financial statement that
summarizes an entity’s assets, liabilities and net assets at a specific point in time. These
three balance sheet segments give readers an idea as to what the entity owns and owes.
The balance sheet follows the following formula:
Assets = Liabilities + Net Assets/Equity
Temporarily Restricted Net Asset: An asset that has a donor imposed restriction such
as fulfilling a specific purpose and/or the passage of time.
Unrestricted Net Asset: An asset that has no donor imposed restrictions.
CHAPTER 11 – NET ASSETS/EQUITY
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IMPLEMENTATION GUIDANCE & JOURNAL ENTRIES
Journal Entry Examples:
11-1 Unrestricted Net Assets
At the end of the year:
Debit: Year-End Revenue Balances
Credit: Year-End Expense Balances
Debit: Unrestricted Net Assets (offset of expenses)
Credit: Unrestricted Net Assets (offset of revenues)
xxxxx
xxxxx
xxxxx
xxxxx
Note that most accounting software automatically records this entry. Check with your software
provider before making this entry.
11-2 Parish/Board Designated Contributions:
At the time of donation:
Debit: Cash
Credit: Revenue: Unrestricted Revenue
At the time of designation:
Debit: Unrestricted Net Assets
Credit: Parish/Board Designated Net Assets
xxxxx
xxxxx
xxxxx
xxxxx
When expenses are incurred for the designated purpose:
Debit: Expense
xxxxx
Credit: Cash
xxxxx
Debit: Parish/Board Designated Net Assets
Credit: Unrestricted Net Assets
xxxxx
xxxxx
Note, a journal entry to adjust the classification of net assets may be done on a monthly basis
versus each time revenue is recognized or an expense is incurred.
11-3 Temporary Restrictions:
At the time of the donation:
Debit: Cash
Credit: Revenue-Temporarily Restricted
Debit: Unrestricted Net Assets
Credit: Temporarily Restricted Net Assets
xxxxx
xxxxx
xxxxx
xxxxx
Note, that most accounting software automatically records this entry. Check with your software
provider before making this entry.
At the time that the restriction is met:
Debit: Expense
Credit: Cash
Debit: Temporarily Restricted Net Assets
Credit: Unrestricted Net Assets
CHAPTER 11 – NET ASSETS/EQUITY
xxxxx
xxxxx
xxxxx
xxxxx
PAGE 5 OF 10
To record the release from Temporarily Restricted to Unrestricted equal to the expense.
Note, a journal entry to adjust the classification of net assets may be done on a monthly basis
versus each time revenue is recognized or an expense is incurred.
11-4 Permanent Restrictions:
At the time of the donation:
Debit: Cash
Credit: Revenue-Permanently Restricted
Debit: Unrestricted Net Assets
Credit: Permanently Restricted Net Assets
xxxxx
xxxxx
xxxxx
xxxxx
Note, that most accounting software automatically records this entry. Check with your software
provider before making this entry.
If restricted cash account set up:
Debit: Cash-Restricted
Credit: Cash
xxxxx
xxxxx
To record earnings on Permanently Restricted (Endowment) Fund Investments:
Debit: Cash or Investments
(Unrestricted or Restricted)
xxxxx
Credit: Endowment Income
xxxxx
(If applicable):
Debit: Unrestricted Net Assets
Credit: Temporarily Restricted Net Assets
xxxxx
xxxxx
To record distributions from an Endowment Fund:
Debit: Cash
xxxxx
Credit: Investment
xxxxx
Debit: Permanently Restricted Net Asset
Credit: Unrestricted Net Asset
xxxxx
xxxxx
Note, a journal entry to adjust the classification of net assets may be done on a monthly basis
versus each time revenue is recognized or an expense is incurred.
11-5 Entries for payments that reduce a liability on Statement of Financial Position:
At the time of payment of a liability:
Debit: Debt Principal Payment
Credit: Cash
Debit: Temporarily Restricted Net Assets
Credit: Unrestricted Net Assets
xxxxx
xxxxx
xxxxx
xxxxx
To record the release from Temporarily Restricted to Unrestricted equal to the expense.
Note, a journal entry to adjust the classification of net assets may be done on a monthly basis
versus each time revenue is recognized or an expense is incurred.
CHAPTER 11 – NET ASSETS/EQUITY
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Classifying Receipts:
The following decision tree will assist you in correctly classifying receipts and ensuring proper
accounting recognition.
CHAPTER 11 – NET ASSETS/EQUITY
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End of Period Review Procedures:
The following decision tree will assist in the reconciliation of net asset balances. Additionally it will
aid in the review of donor imposed restricted balances in order to determine if the designation is
still valid. As a note, restricted designations can only be removed by the donor so contact with
the donor may be necessary.
CHAPTER 11 – NET ASSETS/EQUITY
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Sample Financial Statement Presentation:
Balance Sheet
Statement of Financial Position
as of 06/30/20XX
1000
1020
1020
1090
1110
CURRENT ASSETS
Checking Account
Savings Account
Building Improvement Savings
Tuition Receivable
Prepaid Expenses
LONG-TERM ASSETS
1310 Church building
1300 Land
1200 Endowment Account
Last Year
Current Year
200,000
70,000
513,050
500,000
2,300
1,800
29,000
15,000
1,200
1,000
995,000
425,000
83,750
1,000,000
425,000
95,000
CURRENT LIABILITIES
2100 Accounts Payable
2110 Salaries Payable
LONG-TERM LIABILITIES
2400 Building Loan
3000
3050
3100
3200
TOTAL ASSETS
$ 2,249,300
$ 2,107,800
Last Year
Current Year
108,250
13,000
2,500
875,000
800,000
NET ASSETS
Unrestricted Net Assets
1,167,500
1,180,500
Unrestricted -Board Designated Bld Repairs
2,300
1,800
Temporarily Restricted-Mission Trip
12,500
15,000
Permanently Restricted-Endowment Fund
83,750
95,000
TOTAL LIAB & NET ASSETS
$ 2,249,300 $ 2,107,800
Income Statement
Statement of Activities
for the fiscal year ended 06/30/20XX
4000
4010
4070
4310
4235
4340
OPERATING ACTIVITY
REVENUES
Envelope
Plate
Bequest-Special Gift
School Tuition & Fee Income
Program Fees
Rental Revenue
50XX
60XX
6500
50XX
60XX
62XX
6230
6410
EXPENSES
Church Salaries & Benefits
Church Operations Expense
ASPM Assessments
School/Program Salaries & Benefits
School/Program Expense
School Facility Expense
Loan Interest Expense
Rental Building Expense
1,000,000
10,000
25,000
750,000
250,000
165,000
$ 2,200,000
625,000
200,000
105,000
915,000
70,000
200,000
50,000
22,000
$ 2,187,000
NET OPERATING SURPLUS
8XXX
8XXX
8XXX
9XXX
9XXX
9XXX
$
DESIGNATED/NONOPERATING ACTIVITY
REVENUES
Temporarily Restricted - Mission Trip Collections
Board Designated - Building Fund Income
Permanently Restricted - Endowment Fund Income
$
EXPENSES
Temporarily Restricted - Mission Trip Travel Expense
Board Designated - Building Fund Contractor Fee
Permanently Restricted - Endowment Fund Mailing
$
NET DESIGNATED/NONOP ACTIVITY
$
13,000
4,000
500
12,000
16,500
1,500
1,000
750
3,250
13,250
Statement of Cash Flows
for the fiscal year ended 06/30/20XX
Use of cash from operations:
Plus Net Operating Surplus
Plus Net Board Designated Surplus
Less Temporarily Restricted Loss
Change in Tuition Receivable
Change in Prepaid Expense
Change in Accounts Payable
Change in Salaries Payable
Total use of cash from operations
Use of cash from investment activity:
Plus Permanently Restricted Surplus
Change in Endowment Account
Total use of cash from investment activity
Use of cash from construction activity:
Church Building Costs
Use of cash from debt activity:
Loan Principal Payments
Total use of cash for all activity
Beginning Cash Balance - 7/1/20xx
Ending Cash Balance - 6/30/20xx
CHAPTER 11 – NET ASSETS/EQUITY
$
13,000
2,500
(500)
14,000
200
(95,250)
2,500
(63,550)
11,250
(11,250)
(5,000)
$
(75,000)
(143,550)
715,350
571,800
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REFERENCES AND RESOURCES

Archdiocesan Chart of Accounts is found at these locations:
1. Electronically on the Archdiocese of Saint Paul and Minneapolis Extranet
under:



Finance and Administration
Parish Financial Manual
Chapter 3: Parish/School Chart of Accounts Structure
2. Hard copy located in the Parish Financial Manual Chapter 3, Parish/School
Chart of Accounts Structure.
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