As I began preparing for the Church's 2007 audit, I encountered some difficulties in calculating the activity for the temporarily restricted contributions. Over the past year our Church has launched a building campaign and we are tracking the donor contributions, expenses that have been incurred and the related third party debt that has been obtained to help finance the early phase of the construction.
My question to the auditors, are the expenses paid by the 3rd party debt included in the net assets released from restriction on the Statement of Activities? Their answer was No. Third party debt restricted for the capital campaign construction is a management designated account and therefore the activity or disbursements financed by the debt is not a restricted contribution. The management decision to borrow funds is part of “unrestricted net assets” and can be classified as a component of unrestricted net assets.
This made perfect sense, since I knew that it wasn’t a third party designation. Management’s decision to obtain financing is just that, “management” designated for capital expansion, and therefore should be reported as part of unrestricted net assets.
Tammy Bunting is the accounting manager for a large church in the Grapevine Texas area.
