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Old 03-08-2016, 01:05 PM
john4life1932 john4life1932 is offline
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Non Profit Retained Earnings

End of year. What do I do with "Retained Earnings" for non profit 501 c 3?
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Old 03-21-2016, 04:18 PM
Lorin Browning Lorin Browning is offline
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If you are not exporting to Excel and changing the name of the equity section of the Balance Sheet to Net Assets and changing the title of the Balance Sheet to Statement of Financial Condition, you don't do anything. You just live with the fact that QuickBooks is selling something for not-for-profit reporting that is not compatible with Generally Accepted Accounting Principles, and live with the fact that those who require an audit and submit QuickBooks generated Financials to the auditor are paying a substantial amount of money to the auditor to "fix" the financials.

Simply put, the "equity" is simply the difference between the organization's assets and the organizations liabilities. In other words, the organizations total assets less the organization's liabilities is the organization's net assets (namely, what in the for-profit-world would be equity). And "retained earnings" is simply another of QuickBooks misnomers. Contrary to the QuickBooks Income statement, not-for-profits don't have retained earnings. They have excesses of revenues over expenditures

Strictly speaking, GAAP requires the net assets to be identified as:
  • Permanently Restricted
  • Temporarily Restricted
  • Unrestricted

IRS does not have that requirement. And IRS still allows the use of either Net Assets or Fund Balances, despite the fact that the use of Funds were obsoleted as reporting tool for not-for-profits by FASB statement 117 back in 1994. See Part X Balance Sheet of IRS form 990, where the major divisions are Assest, Liabilities, and Net Assets or Fund Balances.

For the organizations following SFAS 117, there is a place to check on the form and fill in lines for
  • 27 Unrestricted net assets
  • 28 Temporarily restricted net assets
  • 29 Permanently restricted net assets
For those who don't check the box the lines are for
  • 30 Capital stock or trust principal, or current funds
  • 31 Paid-in or capital surplus, or land, building, or equipment fund
  • 32 Retained earnings, endowment, accumulated income, or other funds. Both are required to list Total net assets or fund balances

This is probably more than you wanted to know. So the simple answer about what to do with retained earnings is: Do nothing unless you want to redo the entire QuickBooks methods of handing not-for-profit financials.
__________________
Lorin Browning, Ph. D.
Fellow -- National Tax Practice Institute
lorin@lorinbrowning.com

Last edited by Lorin Browning; 03-31-2016 at 12:02 PM.
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