School clubs can come in various forms, such as booster, parents or sports clubs, and are generally comprised of both students and adults trying to raise funds to support a specific school function. But being in charge of or even working in the business office of a club at your local school comes with the responsibility of accounting for cash transactions properly.
Who Records What?
To properly record transactions for a school club, you must first understand the nature of them. In general:
- If the club acts as its own organization, then a school would not record any of the club-related transactions.
- If a club’s assets revert back to the school, then the school would record the underlying assets.
For example, some school clubs have their own tax exempt number and are therefore considered separate legal entities — even if the sole purpose is to raise money and provide for a school’s program. In this case, none of the assets and related activity of the club would be recorded under the school’s books and records. The same is the case if the club has its own set of by-laws, which is indicative of being a separate organization. In addition, it is more than likely spelled out in the by-laws that if the club were to cease existence, the assets held by the club would revert back to members of that organization, therefore leaving the decision making to the governing committee members. However, if there are funds that are eventually transferred to the school’s operating cash accounts due to reaching maximum threshold, the school would record that as a contribution.
Many are familiar with the term “agency transactions” in the not-for-profit world, but some may think this is the correct way to account for most school clubs. In general, agency transactions occur when one not-for-profit organization (the agent) raises funds or contributions on behalf and for the benefit of another not-for-profit organization (the recipient). Contributions raised by the agent would be recorded as a debit to cash (asset) and a corresponding credit to a liability. Typically, if the agent doesn’t have “variance power,” in which the donor stipulates where the final receipt of funds goes, then a school would not record contributions received as revenue, but rather record it as described previously.
Many private schools in particular may run into situations where they need to determine how to account for their cash transactions. It is critical to fully understand the nature of the clubs and how they are structured to determine the proper accounting for them.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.