PSA L&P - Accounts: Why every entity must have a Net Asset Account

Why every entity must have a Net Asset Account

ParishSOFT Accounting provides account segments called Entities to allow organizations to categorize accounts into their larger natural divisions within the same general ledger. For example, an organization may have the following divisions: Church, School, Cemetery.

Permanent accounts are those that appear on the balance sheet, such as asset, liability, and net asset accounts. Net Asset Accounts are used in ParishSOFT Accounting as permanent accounts which are used to track the ongoing balance for each entity. In for-profit accounting they are known as Equity Accounts. As you can see in this table, each Entity is assigned its own Net Asset Account. Note: GAAP Accounting uses two Net Asset Accounts

Division Entity Net Asset
Church 1 N-1-300-1
School 2 N-2-300-1
Cemetery 3 N-3-300-1

Temporary accounts are used to track the yearly balance for each entity and account. The most common types of temporary accounts for non-profit organizations are for income and expenses - essentially any account that appears in the income statement.  

Income and Expense Accounts are also assigned to an entity. This helps organizations to track how much money has come in or has gone out according to these divisions.  

Division Entity Account Code
Net Asset Church 1 N-1-300-1
Offering Inc Church 1 I-1-400-1
Admin Exp Church 1 E-1-500-1

When the fiscal year is closed, ParishSOFT Accounting rolls the temporary accounts' Income & Expense year-end balances into permanent Net Asset Accounts, thereby allowing the Revenue & Expense accounts to begin the new fiscal year with zero balances.  

  • At the end of the fiscal year, closing entries are used to shift the entire balance in every temporary account into their net asset account, which is a permanent account. The net amount of the balances shifted constitutes the gain or loss that the organization recorded during the period.
  • Once the year-end processing has been completed, all of the temporary accounts have been emptied and therefore "closed" for the current fiscal year. A flag in the accounting software is then set to close down the old fiscal year, which means that no one can enter transactions during that time period. The temporary accounts are opened, now with zero balances, and are used to begin accumulating transactional information for the next fiscal year.
  • Thus, the only accounts closed at year-end are temporary accounts. Permanent accounts remain open at all times. 



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