Nonprofits and churches often face complex accounting situations that require more than a simple transaction entry. Whether you're correcting a mistake, adjusting fund balances, or moving assets, a well-crafted journal entry in Aplos is a powerful tool for maintaining accurate and transparent financials. This guide will walk you through several common, more complex journal entries and the rationale behind them.
Understanding Debits and Credits
Before you can use the journal entry screen, you must first understand the core concepts of debits and credits. Don't think of them in terms of your bank account; instead, consider them as the two sides of every financial transaction. In double-entry accounting, every transaction affects at least two accounts, with a debit on one side and a credit on the other. For a transaction to be valid, the total debits must always equal the total credits.
Think of debits and credits as "left" and "right" sides of a balanced equation. To remember how they affect different accounts, use the following chart:
Assets are things your organization owns (like cash or bank accounts). Expenses are costs incurred during operations. Both increase with a debit and decrease with a credit.
Liabilities are what you owe (like loans or accounts payable), equity is the organization's net worth, and income is money earned. These three accounts are the reverse: they increase with a credit and decrease with a debit.
When to Use the Journal Entry Screen
While you can technically use the journal entry screen for any transaction, it's best to use dedicated screens (like a register for bank transactions or an accounts payable screen for bills) for common entries.
The journal entry screen is most useful for:
- Adjusting entries: Correcting or updating accounts at the end of a period.
- Irregular transactions: Entries that don't fit into the standard categories (like a grant transfer between funds).
- Complex payroll: Manually entering payroll data that doesn't integrate with your software.
- Fund transfers: Moving money physically between bank accounts and reallocating it between different funds.
Navigating the Journal Entry Screen
The journal entry screen typically has three main sections:
- Left sidebar: This is where you can start a new journal entry, import a file, or view a list of previous entries.
- Center form: This is the main entry form. You'll enter details like the date, a memo to describe the transaction, and the individual lines for each account affected.
- Transaction rows: Here, you'll select the accounts and enter the debit or credit amounts. As you enter more lines, new blank rows will appear.
The software will prevent you from saving an unbalanced entry. A balanced entry will show the total debits equaling the total credits.
Entering a Simple Journal Entry
Let's say your organization receives a donation of $50 and deposits it into the bank.
- Analyze the transaction: What's happening? You have more cash, and you've received new income.
- Identify the accounts: The checking account (an Asset) is increasing, and the donations income (an Income account) is increasing.
-
Determine debits and credits:
- To increase an Asset (checking), you debit it for $50.
- To increase an Income account (donations), you credit it for $50.
-
Enter the transaction:
- Line 1: Select your checking account, enter $50 in the debit column.
- Line 2: Select your donations income account, enter $50 in the credit column.
- Post the entry: With a debit of $50 and a credit of $50, the transaction is balanced, and you can save it. The system will then update your bank register and financial statements accordingly.
| Account | Fund | Debit | Credit |
|---|---|---|---|
| 1000 - Checking | General Fund | $50 | |
| 4000 - Donations Income | General Fund | $50 | |
| Total | $50 | $50 |
Handling Complex Fund Transfers
For organizations using fund accounting, a simple journal entry can get more complicated when moving money between funds. A true fund accounting system requires each fund to be balanced independently, in addition to the overall balance of the entire organization.
Aplos's dedicated fund transfer tool works great for moving money between funds within the same account (e.g., from General Fund to Outreach Fund in your Checking Account). However, what if you're also physically moving the money, like transferring from a Savings Account to a Checking Account, and also changing the fund?
This is another case where a journal entry is the most efficient solution. The key here is using an equity account as a "bridge" between the funds.
- Credit: Decrease your Savings Account asset (Savings Fund)
- Debit: Increase your Checking Account asset (General Fund)
You'll notice you're "out of balance by fund." The solution is to use the equity of each fund to correct this.
- Debit: Increase the equity of the General Fund by the same amount. This reflects the fund's "worth" increasing because it's gaining assets.
- Credit: Decrease the equity of the Savings Fund by the same amount. This reflects the fund's "worth" decreasing because it's losing assets.
Here's how the journal entry would look:
| Account | Fund | Debit | Credit |
|---|---|---|---|
| 1000 - Checking | General Fund | $1,000 | |
| 1100 - Savings | Savings Fund | $1,000 | |
| 3000 - General Fund Equity | General Fund | $1,000 | |
| 3010 - Savings Fund Equity | Savings Fund | $1,000 | |
| Total | $2,000 | $2,000 |
This method ensures that your fund balances and your checking account are correctly reflected, and your income statement accurately shows the expense against the appropriate fund.
Entering Payroll
If your organization does not use a payroll provider with a direct accounting integration, you can use a journal entry to record the payroll. This is a common practice for providers like ADP, where you need to manually enter the data.
To understand how to create the payroll journal entry check out our resource on tracking payroll in Aplos.
Got it. I will now integrate the detailed journal entry breakdowns into the article you previously requested.
Reclassifying Income and Expenses by Fund or Tag
Mistakes happen. A common scenario is when an expense is initially paid from one fund but should have been allocated to a different fund or tag. Instead of trying to edit a reconciled or sourced transaction, it's best to post an adjusting journal entry.
Let's say a $100 expense for office supplies was incorrectly charged to the General Fund and needs to be reclassified to the Outreach Fund with a specific team tag. A simple debit and credit to the expense accounts won't work because each fund must be in balance.
The key is to think of the journal entry as a two-part process:
- Reverse the original transaction: Decrease the expense and increase the asset (e.g., Checking Account) in the original fund. This "puts the money back."
- Post the new, correct transaction: Increase the expense and decrease the asset in the correct fund and with the correct tag.
Here's how the journal entry would look:
| Account | Fund | Debit | Credit |
|---|---|---|---|
| Office Supplies Expense | General Fund | $100 | |
| Checking Account | General Fund | $100 | |
| Office Supplies Expense | Outreach Fund (with tag) | $100 | |
| Checking Account | Outreach Fund | $100 |
This method ensures that your fund balances and your checking account are correctly reflected, and your income statement accurately shows the expense against the appropriate fund.
Mid-Year Transitions to Aplos
If you're migrating to Aplos mid-year and don't want to enter every historical transaction, you can use a journal entry to establish a starting point. This allows you to produce full financial statements for the current year without a full data migration.
- Run a trial balance report from your previous accounting software as of the end of the last month you'll be using that system.
- Create a new journal entry in Aplos as of the first day of the new period.
- Enter a summary of all year-to-date income, expenses, assets, and liabilities from your trial balance.
Here's a simplified example of how this journal entry might look:
| Account | Fund | Debit | Credit |
|---|---|---|---|
| All Income Accounts (YTD) | Various | $100 | |
| All Expense Accounts (YTD) | Various | $50 | |
| Checking Account | General Fund | $50 |
This is a simplified example. A real-world entry would list all income, expense, asset, and liability accounts with their year-to-date balances.
Essentially, you are entering a single summary transaction that sets the stage for all future transactions in Aplos. This allows you to have a continuous record of your organization's financial activity without the tedious process of historical data entry.
Providing a "Balance" to a Tag
Tags in Aplos are descriptors, not balance-holding entities. They track income and expense activity, but they don't have a balance sheet presence. However, if you want a specific tag to have a "starting balance" for reporting purposes, there's a clever workaround using a journal entry.
The trick is to use an income account specifically created for this purpose, like "Prior Year Tag Balances."
- Credit: Post a credit to the Prior Year Tag Balances income account. This entry will not have a tag.
- Debit: Post a debit to the same Prior Year Tag Balances income account. This time, you will assign it the specific tag you want to have a balance.
- Ensure the fund is the same on both lines to avoid an "out of balance by fund" error.
Here's how this journal entry would look:
| Account | Fund | Debit | Credit |
|---|---|---|---|
| 4600 - Prior Year Tag Balances Income | General Fund | $5,000 | |
| 4600 - Prior Year Tag Balances Income (with tag) | General Fund | $5,000 |
This journal entry cancels itself out on your overall income statement, leaving your total income unchanged. However, when you run an income statement filtered by the specific tag, it will show the amount from the debit line, effectively giving that tag a starting "income" balance.
These examples demonstrate the versatility and power of journal entries in Aplos. By understanding the underlying accounting principles and the specific rules of Aplos's fund accounting system, you can handle even the most complex financial situations with confidence. If you encounter a situation that isn't covered here, remember to think about the narrative of the transaction—what is happening, and where is the money going? The journal entry will naturally follow.
If you would like to see a walkthrough of these examples, checkout our webinar recording on Mastering Complex Journal Entries.
Related to