mortgage payment transaction posting in fund accounting

Posting Journal Entries in Fund Accounting

What is the proper way to post a church mortgage payment to the ledger? I know that the standard procedure in for-profit accounting is NOT expense the principal portion, but rather to increase the equity account and decrease the mortgage liability account.

However, a church accountant told me that this is not the case with fund accounting, and that the entire payment should be expensed and then a separate journal entry to reduce the mortgage and increase the equity. I would prefer the second option, but our bookkeeper insists on the first.

The problem with the first option is that our income vs. expenditure and our budget reports are skewed because they don't include the entire mortgage payment. Can someone help me and explain WHY?

Comments for mortgage payment transaction posting in fund accounting

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Church Treasurer
by: Parishener W

If I contribute $1,000.00 to my church specifically for the mortgage, can that entire amount pay a monthly payment including the interest?

POSTING MORTGAGE PRINCIPAL TO BUDGET VS ACTUAL WHEN I ALREADY POST IT AS A LONG TERM LIABILITY TO REDUCE THE BALANCE ON MY BALANCE SHEET
by: Anonymous

We are currently posting our mortgage as a long term liability so that it properly reduces the mortgage principal on our balance sheet. But now our budget vs actual is scewed on the bottom line and I cannot figure out how to properly post this it shows up. I have tried to track a class but I don't see where it shows up on the budget vs actual.

Refinancing
by: Brianna

We've refinanced a mortgage, which we normally account for monthly as:

Debit Mortgage Expense (Total)
Credit Cash (Total)

Debit Loan Balance (Principal)
Credit Fund Balance - Building (Principal)

When setting up the new loan, old loan balance was cleared out, new balance was set up, closing expenses accounted for, and cash received and booked...

Questions -
Do I need to clear out the current fund balance of principal paid on the old loan, and how do I do that?

Now, or at Fiscal Year End?

Handling One mortgage loan for two NPOs
by: Vickey

Answer for Anonymous regarding handling one mortgage loan for two NPOs...

It would depend if the church and school were under one EIN.

I don't know how you have them both set up, but if both are under one EIN, I would be tracking both in the same accounting file. Then I would set up the school as a location in QBO or a Fund in Aplos and would record the principal payment and interest and assign the school's location/fund. Be aware that you may have to create a journal entry to make sure the principal payment on the liability is properly reducing the funds on the school's fund.

If they are under different EINs, I would have to know the particulars before I could advise on how to handle such as whose name was on the mortgage; was the school making the actual payment at the bank or giving the church the money for the payment; etc.

If that is the case, please see my bookkeeping services page for a form to contact me. You can find that page by going to the top of this page and clicking on "PACKAGES" and then go down to "Bookkeeping Services".

One mortgage loan two NPOs
by: Anonymous

A church and a school share one building. Mortgage loan was issued to both, only school pays it. what is the bookkeeping of the mortgage loan for the church?

Mortgage Accounting
by: Anonymous

Debit interest expense credit accrued interest.

Mortgage Payable
by: Anonymous

In the example listed, an expense normally has a Debit Balance. Therefore a credit of the expense would result in a negative balance in the interest expense account. I am certain this isn't the way to properly record that transaction. I am not certain what is....

to record pmt of mortgage:
debit mortgage expense
credit cash

to record interest expense:
debit interest expense
credit ????

Mortgage Payable
by: Anonymous

Each month when I pay the mortgage I pay it like this:

I charge the principle to the mortgage payable account which is a long term liability
and the interest I expense out to Mortgage Interest.

Is this wrong? If it is, how can I fix it?

Borrowing to pay interest
by: Marcus in Texas

I would suggest that borrowing "new" money to pay interest on "old" borrowed money is generally not a very good idea unless the interest rate to be payed on the "new" borrowed money is considerably less than interest being earned on the money that would be used to pay the interest on the "old" borrowed money.

Sounds like some kind of riddle, but it isn't a riddle.

Building Interest Expense
by: Anonymous

Should the interest expense on a new building be paid and accounted for in the general budget or should money be borrowed from the credit line to pay the interest?

settlement fees
by: Anonymous

Our church just refinanced its mortgage to get a lower rate. How do I book the settlement fees. They were rolled into the new loan so no cash was involved.

All I can see is to:

Dr Loan fees (expense)
Cr Liab-Loan principal (liab)

since the loan is increasing... but I am not affecting the Fund equity account. Right? is this because cash isn't involved?

Any help...

Property Fund Acct
by: Lucas H.

A "Fund" Acct is usually what is referred to in profit accounting as an equity account.

What is the "Property Fund " account?
by: Anonymous

What type of an account is "Property Fund -
principal"? That can't be an Asset account, like a building.

Thanks!

Fund Acctg for Mortgage Pmt
by: Lucas H.

I have been working with a CPA (the former Business Manager) and we recently booked a Mortgage Payment.
It's a two part entry:

Part 1:
dr. Mortgage Expense
cr. Cash
This recognizes the cash expenditure. It uses the total payment to recognize interest expense. If you wanted to separate the interest portion in this part, it would work.

Part 2:
dr. Mortgage Pay. (Principal)
cr. Property Fund (Principal)
This adjusts the fund and the liability for the Principal portion of the payment.

If doing it this way skews your budget - I would submit to you that your budget should probable be adjusted. Your budget should always be set-up to take into effect how the accounting is being done. Otherwise, you will lose the connection between Budget and Actual. When this happens your Budet process loses it's ability to guide your financial decisions. I hope this helps, God Bless You!

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