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Due To and Due From

  • Finance Officer
    Town of Carthage
    69
    Good afternoon,

    We have never needed to use Due To and Due From in the past.  We now have a situation where our sewer fund needs to borrow cash from the water fund temporarily.  Can someone help me understand the use of these? I was thinking this would be a credit to  cash and debit to Due From Sewer  in the Water fund (giving the loan) then a debit to cash and credit to Due To Water in the sewer fund (receiving the loan), but what I am reading is that the debit in the sewer fund should be to an expense.  I am a little confused by this.  Can someone help me understand this?

    Kesha Matthews
      April 9, 2021 5:19 PM EDT
    0
    • Tammy Holland
      Tammy Holland Kesha,
      I would probably set up a transfer out to sewer account (expense) in water and a transfer in (revenue) in sewer. The entry for water would be transfer out to sewer debit, due to/from sewer credit. Sewer entry transfer in from water fund credit and...  more
      April 10
  • Finance Officer
    Town Of Kitty Hawk
    12
    Keshia,
    If someone can explain will be great. I have an issue with the pool cash report since we implemented the software and I can't figure out how to fix it. It has to do with the due to due from accounts settings
      April 10, 2021 3:51 PM EDT
    0
  • Finance Director
    Village of Bald Head Island
    4

    Here is how I would do this in our accounting system...I'd be interested in seeing how others would handle this, as well.

    To do the transfer between the Water Fund and the Sewer Fund, your journal would have 6 entries.

    Since you are sending money from the Water Fund into the Sewer Fund, one entry will be a Debit to an expense account in the Water Fund (i.e., “Transfer to Sewer Fund”, etc.).  Then, you would credit your “Due From Central Depository” account in the Water Fund to account for the money leaving the Water Fund and going back into the Central Depository. 

    You have to account for the money moving between funds within your Cash accounts.  So, in your Cash Fund, you would Debit your “Due To Water Fund” account to account for the money coming back into the Central Depository.  Then, you would Credit your “Due To Sewer Fund” account for the money now going into the Sewer Fund.

    In your Sewer Fund, you would Debit your “Due From Central Depository” account to receive the money from the Central Depository and then Credit a Revenue account in the Sewer Fund (i.e., “Transfer From Water Fund”, etc.).

    Fund           Debit                                          Credit

    Cash
               Due To Water Fund                       Due To Sewer Fund

    Water          Expense Account                         Due From Central Depository
                      (Transfer TO Sewer Fund)             (Account in Water Fund)

    Sewer         Due From Central Depository        Revenue Account
                      (Account in Sewer Fund)              
    (Transfer FROM Water Fund)

     

    Keep in mind, that you need a budget amendment to account for this transfer of funds.  It would only have 4 entries:

    Fund                      Expenses                             Revenues

    Water                    Transfer to Sewer Fund          Fund Balance Appropriated?

    Sewer                    Expense Accounts for            Transfer from Water Fund
                                 what the money is being
                                 transferred to be used…

     
    Hope this helps!

    This post was edited by Zachary Hewett at April 10, 2021 7:50 PM EDT
      April 10, 2021 5:12 PM EDT
    0
  • Instructor
    Wake Technical Community College
    2

    Kesha,

    Due to/Due from accounts have been known to give even the best accountant a headache.  However, it appears from what you have presented here, that you have it correct. 

    In using these accounts, it might be easier if we think of Due from as an internal accounts receivable (asset account), being owed from other entities/departments/etc. usually within the same company or organization.  Likewise, Due to can be thought of as an internal accounts payable, in other words monies owed to other entities/departments/etc.  So, in recording a Due from, it would be debited (just as you noted above) when established and credited when paid back.  Similarly, Due to would be credited when recorded initially and debited when it is paid back.

    As for the main cause of your consternation, the offset account in a journal entry when recording a Due to can in fact be an expense account, so whatever you read should be correct I believe.  This is because often times a Due to can be tied to a specific expense.  For instance, one entity may employ folks from another entity within the organization for temporary work.  The journal entry to account for that payroll expense could show a debit to wages expense and a credit to the Due to account.  However, the offsetting account with a Due to can just as easily be an asset account, such as cash is your example.  Inventory is another common account used as quantities may get transferred from one entity to another within an organization.

    One other thing I would mention here, and I bring it up only because maybe it was what you were reading.  Is it possible that what you read was actually about transfer to/transfer from accounts?  These are usually expense type accounts with their balances closed out to the fund balance account at year end.  This would clearly be different from Due to/Due from accounts as they would be balance sheet accounts and as such would carry on year after year.

    I hope this has helped clear it up a bit for you.

      April 10, 2021 5:24 PM EDT
    0
  • Vice President
    Capital Management of the Carolinas, LLC
    7
    Properly recording interfund activity can be tricky. How this tranaction will be recorded depends on whether it is an interfund transfer (nonreciprocal interfund activity) or an interfund loan (reciprocal interfund activity). Transfers are reassignments of resources from one fund to another whereas loans are expected to be repaid in a reasonable time. The cash side of the transaction will be the same for both a loan or a transfer. However, for a loan you will use the Due To and Due From accounts and for a transfer, you will use Other Financing Sources and Other Financing Uses accounts.

    There is a good explanation of this in the 2020 GAAFR in Chapter 4, 4-13-17. 
      April 12, 2021 8:34 AM EDT
    0