Allocating an Investment Expense Paid with Cash
Some expenses related to the managing of an investment pool are billed directly to the foundation and are then paid with cash. These expenses can be paid directly through the normal AP process and then spread to members of the investment pool using the process outlined below.
- Post Purchase Invoice
- Record the Payment
- Allocate the Expense to Pool Members
- Offset the Allocation
- Results
Post Purchase Invoice
The expense can be entered as a purchase invoice with the Operating Fund incurring the initial expense (example Operating Fund is fund 00001).
Record the Payment
The purchase invoice is then paid through the payment journals from the bank account that made the real-world payment.
Allocate the Expense to Pool Members
Joint Investment Allocation is run to spread the expense to all members of the investment pool. This additional expense can be posted as part of the normal monthly allocation process (warning: only a single JIA can be posted per bank account per day).
Offset the Allocation
An adjusting journal entry should be posted through the General Journal to offset the spreading of the expense. The expense account is credited in the Operating Fund and the investment pool is debited in the Rebalance Fund (example Rebalance Fund is 00000).
Results
- Operating Fund –Initially, after posting the purchase invoice and payment the Operating Fund had a debit to expense and credit to its DT Account/Cash. After posting the offsetting entry it will have zero balances.
- Rebalance Fund – This Rebalance Fund will have a negative balance in cash and a positive balance in the investment pool indicating that cash should be transferred from the investment pool to cash to cover the expense.
- Members of the Pool – The members of the investment pool will have a combined expense that equals the initial expense posted to the Operating Fund. Each member will receive a proportional reduction in their investment pool balance as well.