Home > docs > finances > legacy > Introduction to Legacy Finances

Introduction to Legacy Accounting

Scout Manager’s older legacy finance package uses double-entry accounting to track all financial transactions using Cash Basis accounting methods. What this means is that there are a minimum of 2 entries for every transaction. Those are called debits and credits – more on that later. In laymans terms it means that money can’t just “show up” it has to come from somewhere. For example a donation, popcorn sales or some other fundraiser are sources of money and so you’ll want to have accounts representing all your sources of money.

When recording a transaction we’ll ask you where the money came from (e.g. a donation for $250) and where its going (e.g. to your cash account). Then Scout Manager will create 2 entries:

  • one to record that you’ve received a donation for $250
  • and second to record that you’ve added $250 to your cash account.

Those entries are called journal entries and you’ll be able to see those for any account. A journal entry is simply an entry to an Account. When you view an Account and see entries, those are the journal entries. Journal entries are grouped together across accounts to create a Transaction. You can click on the “description” of any journal entry to see the entire Transaction.

In doing accounting this way you can always look back and see where that deposit for $250 came from AND how much in donations you’ve received in the year. This process is the same for all types of “accounts” from donations to popcorn sales to scout individual accounts to camping funds.

So a transaction will always result in at least two journal entries. Sometimes it may require multiple Transactions and/or journal entries to properly record how money is flowing through your organization. For example if a scout gives you a check for $175 to pay for summer camp. For these types of scenarios we have provided a “Business Transaction” to help make this easier. Have a look through the examples on how and when to use it.

If you understand this you’ve tackled the biggest hurdle so far in understanding how Scout Accounts work and how general accounting practices work.

Double-entry accounting

Accounting, broadly considered, is the system of measuring, recording, and reporting economic events based on the accounting equation: Assets = Liabilities + Equity (also stated as: Assets - Liabilities = Equity).

Double-entry accounting is a self-balancing accounting method consisting of two-sided transactions that record where your money comes from and where it goes to. This is in contrast to single-entry accounting—your personal checkbook is a good example—in which money simply enters stage right (when you deposit a paycheck) and exits stage left (when you write a check for groceries).

In double-entry accounting, money never simply appears; it is transferred from a source account (or accounts) to a destination account (or accounts). For instance, you might pay a Scout Camp from your checking account (Asset); that payment is also then entered in your Camping expenses account (Expense). Thus, you may track exactly where and how (and when) your assets are being used.

These money transfers, also known as transactions, are recorded as debits and credits. Every debit to one account must be matched by a credit to another, and vice-versa. Double-entry accounting uses a form called a T account, so called because the T shape separates the three elements of a transaction. Along the top of the T you’ll find the name of the affected account; in the left column are debits, and in the right, credits.

Net Assets (or Equity) – is what remains of your Assets after deducting your Liabilities. If you have $100 in Assets and $25 in Liabilities, your Net Assets (Equity) would be $75.

  • Income is the revenues you take in during a given time period. Your income accounts might be: Donations, Pack/Troop dues, Fundraiser.
  • Expenses are the costs you incur during a given time period. Utility Bills, Scout Awards, Insurance – these are typical expense accounts.

Understanding Account Types

Before you can effectively set up your accounting you’ll need to understand the basic account types and how to use them. The type of account is super important as it determines how the accounting system behaves as it flows money through an account.

Accounts

Accounts represent a variety of ways of keeping track of the flow of money (where it comes from, where it’s going) within your unit. They are at their most basic and abstract, accounts consist of a number (for identification), a name, a type, and a balance.

Account Balances are the sum of the debit entries minus the sum of the credit entries in that account.

There are five types of accounts: Asset, Liability, Revenue (or income), and Expense. Revenue and Expense are sub-accounts under Equity, but they behave differently enough that they’re worth treating on their own.

  • Asset Accounts represent things that you have (cash in the checking account, or maybe a trailer) or that someone is legally obligated to give you later (such as Accounts Receivable).
  • Expense Accounts are monies that you’ve paid out such as Summer Camp, Reimbursements, etc.
  • Revenue Accounts represent income of money into your Pack/Troop. These could be fundraisers, donations, etc.
  • Liability Accounts are monies that you are legally obligated to pay to someone else – like debts for registration, member accounts, or camping money not yet disbursed.
  • Member Accounts are specialized Liability accounts to help organize other liabilities from your members such as scouts, adults, den and patrols.

Asset accounts

These accounts represent the tangible money the pack has. You should create an ASSET account to represent the Pack Checking Account. You can have more than 1 ASSET account – for instance some council Scout Service Centers allow units to put money into an “account” at the store so Awards Coordinator can buy awards without needing to pay out of pocket. To handle this scenario, you can create an ASSET account called Scout Service Center and deposit money into that account.

Liability and Member accounts

These accounts represent the money you owe to someone. If you are collecting money for something and then paying it out, it’s a Liability. The Day Camp you mentioned would be a Liability account. Collecting money for yearly BSA registrations should be collected into a liability account. Some fundraisers may have a liability portion to them, like Trails End Popcorn. All your scout and adult member accounts are liability accounts.

Expenses

This is the most difficult one for some to understand. Just because you’re writing the check out of the pack’s checking account doesn’t mean the entire cost is an expense for the pack. Again, the Day Camp you mentioned isn’t a pack expense unless the pack is paying for the entire event from it’s funds. If you are collecting the money from the scouts and then paying the Day Camp, it isn’t a pack expense – it’s the scout’s expense. Expenses would be office supplies, rent on storage units, refilling propane tanks, new tents, etc.

Revenue

This is probably the easiest to understand. If the pack has income, it gets put into a revenue account. Examples are: pack dues (not registration fees), fundraisers and donations.

Transactions

As mentioned before, transactions are financial events that transfer money by crediting one account and debiting another.

How do debits and credits work? Debits represent either the addition of an asset or expense or the reduction of income or liability.

Credits, conversely, represent reductions to assets or expenses or an increase in income or liability.

The chart below shows how debits and credits affect different kinds of accounts.

ACCOUNT TYPE DEBIT CREDIT
Asset INC DEC
Liability DEC INC
Income DEC INC
Expense INC DEC

Throughout these articles, we’ll explain how the various transactions work on the “back-end” – that is, to answer the question “Where will the debits and credits show up?”

Fund-based accounting

Because of their fundamental differences in purpose and structure, non-profits have different accounting needs than for-profit businesses. While businesses concern themselves with how much profit was earned, non-profits have numerous individual funds, which, rather than be paid out to shareholders, are used to prove the Pack or Troop is using its resources for the correct purposes (especially donations). For example, monies donated for a particular scholarship must be used for that scholarship; fund-based accounting is set up to make misuse of such funds much more difficult to hide.

A fund is a pool of money set apart for a specific purpose. For instance, you may set up a Quartermaster Fund intended for maintenance and improvements on the troop’s the tents, tarps, cooking supplies and other inventory. A fund is a self-balancing set of accounts, with its own income, asset, and expense accounts. Specialized funds are kept separate from the Pack or Troop’s General Fund – meaning the fund, though it may have another name, is meant for day-to-day operations using monies not earmarked for a specific purpose.