The Annual Operating Budget

[AT&T Care]

Dear Members of the Board of Trustees,

At the March, 2020,  Congregational Meeting when the Annual Operating Fund Budget was proposed I commented that the Principal Portion of the UUFBR Loan to the Endowment Fund was absent and must be included in the Budget.  I stated that the Principal portion of the Loan along with the Interest is part of the actual payment made from the Operating Fund to the Endowment Fund. Therefore, a correct presentation of the Fiscal Year budget requires that entry. Otherwise we are understating our real cash needs for the year. 

A vote of the Congregation at that time declined to add a footnote to the Budget Proposal  that the actual Cash OutFlow of the Loan Payment  included Principal and Interest.

Sadly, I was personally disappointed in the Board's failure to  understand what an Annual Budget is all about and its denial of our real cash outflow.  

Article II. The  Congregation ; Section 8. Budget

                   

                " The Congregation shall approve a budget for each fiscal year covering the operating fund and any special funds established by the Board of Trustees. "

A key purpose of my note to you today is that when we  meet in the Fall, the "correct issue" is addressed . And that is;

"In the fiscal year budget covering the operating fund should both the Principal and Interest of the Loan, payable to the Endowment Fund, be stated in  the expense portion of the budget. ? " 

My understanding is that we will have a qualified independent  contractor accountant to counsel us on this subject.. 

As a matter of interest , yesterday I had correspondence with Rob Valdez. Rob is a former member of the UUFBR Board of Trustees and Co-President. Rob is a Certified Public Accountant (CPA) and is currently employed by a CPA Firm. I think Rob would be a good contact for you to find  one or two accounting firms here in the area from which you can select an accountant advisor for our Fall meeting.

Finally, a little something to think about: When Rob Valdez, CPA, was Co-President and Ari Siegel was Treasurer,  the Fiscal Year Operating Fund Budget always included both the Loan Principal and Interest payment to the  Endowment Fund, as it  did in all previous years. 

I sign off to you as a 33 year Member of UUFBR and NOT a Representative of the Endowment Committee. 

Sincerely,

Paul Chasse 

 

[Sandra Spalletta]

I understand that you view the operating budget as a cash flow statement while our Treasurer views it as an income and expense statement.  I am familiar with both types of financial statements as well as balance sheets.  I do not know on what financial statement budgets are typically based but, how this is resolved will determine whether to include the loan principal in the operating budget.  Our Treasurer told me that, when the principal had previously been included in the operating budget, the outstanding loan amount on our balance sheet was not reduced by the amount of principal paid.  This was clearly in error.

 

Sandy

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[Paul Libert]

Paul:

 

Let’s assume that loan principal is a budget expense item as well as a liability on the balance sheet. Please tell me the ledger entries that will result in a decrease in the loan principal on the balance sheet and an increase in loan principal on the income and expense statement.

 

The hypothetical loan payment is $1,000 of which $700 is interest and $300 is principal. The balance on the loan is $100,000.

 

I’m willing to be convinced.

 

I am copying Rob Valdez on this email. 

 

Paul

 

 

From: uufbr...@googlegroups.com <uufbr...@googlegroups.com> On Behalf Of AT&T Care
Sent: Monday, August 3, 2020 11:33 AM
To: UUFBR Board of Trustees <uufbr...@googlegroups.com>
Subject: [uufbr-board] The Annual Operating Budget

 

Dear Members of the Board of Trustees,

--

[AT&T Care]

Hi Paul, 

While I'm not a CPA  I think this is how it works. 

1. The Budget directs the Treasurer to provide a loan payment to the Endowment Fund for $1,000.00 of which $700.00 is Interest  and $300.00 is Principal. This payment has been mutually agreed to by both parties. 

 2.The UUFBR Treasurer writes a check from the Operating Fund Account  to the Endowment Fund for $1, 000.00  which the

     Endowment Fund receives in its account  i.e. $700.00 Interest and. $300.00 Principal..

3 A.. Now with the payment executed,  the Treasurer of the UUFBR Operating Fund "Books" the transaction in the Accounting Records of UUFBR i.e $700.00 as an expense item in the Income/Expense Records and "Books" the Principal portion of the payment  on the Balance Sheet as both a Reduction in Loan Liability  of $300.00  and an Addition of  $300.00 to the Equity /Asset Value of the UUFBR Property,

3 B. Simultaneously, the Endowment Fund receives the $1,000.00 payment to its Vanguard Account and $700.00 Interest is applied to its Principal Account from which the Loan came from  while the $300.00 Principal Payment  is entered as a reduction in the Amount Owed on the Loan.   That's it.    

      

The Budget, of itself,  has nothing to do with the Formal Accounting Process. It is simply the directive given by the Congregation to the Treasurer/Board of Trustees on what to do and when to do it with the Operating Funds. The formal accounting process is a consequential event recording what took place. 

Sincerely,

Paul Chasse

UUFBR Member 

[Paul Libert]

Paul:

 

We use PowerChurch, an accounting software.   The software program is based on dual entry bookkeeping principles. The only thing that the software understands is debits and credits.   Please just tell me the debits and credits that will result in a decrease in the loan principal balance on the balance sheet and an increase in the loan interest payment on the income and expense statement.  I’m not a CPA or an accountant or a bookkeeper.  But I understand it.  It’s easy, you can do it.

 

Elon and I believe that the correct entries for a $1,000 loan payment are as follows:

 

CR cash (asset on balance sheet)                              $1,000

DB interest (expense)                                                   $  700

DB principal (liability on balance sheet)                $  300

 

These entries result in a reduction in the loan balance (balance sheet) and an increase in the amount of interest (an expense shown on the income and expense statement. It does not expense loan principal.

 

You disagree.  So tell me the correct entries. What is credited and what is debited and in what amount?  A narrative is unnecessary.   

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