Pass-through accounts (PTA) are used when we collect money on behalf of another organization, then pass it along to that organization at a later time. They are sort of like electronic envelopes that hold the money until it is time for it to be paid. That money is not income. It belongs on the Balance Sheet until it is paid. Here are two ways to do it, depending on how many organizations for which you collect money.
Since small organizations tend to comingle these funds with their regular checking account, I have shown clear instructions for how to keep track of that money using an other current liability account. However, there might be ethical (or perhaps even legal) considerations when comingling funds in this manner. I strongly urge readers to consult with their firm’s CPA to make sure these funds are being handled properly on the books. The firm’s CPA’s advice should always be used.
Using pass-through accounts for one or two organizations
First, create an other current liability account:
1. Go to the chart of accounts (COA) by pressing Control-A. Press Control-N to set up a new account.
2. In the Add New Account window, select Other Account Types, then Other Current Liability. Click Continue. A new window opens.
3. Give the account a meaningful name such as, “Pass-through for Children’s Charity.” Make it memorable so that you will easily remember what it is for.
4. Click Save & New if you want to create another account for another organization. Click Save & Close if you are finished.
Now you can use the pass-through account.
1. When you receive money for the organization and deposit it to your bank account, record it by opening open the Make Deposits window (Banking > Make Deposits). Fill in the correct information here. In the Account box, be sure to select the correct other current liability account you created above. Save the transaction.
2. When it’s time to pay the organization, go to the COA and locate the other current liability account for this organization. Check the balance – make sure it’s correct.
3. Record the payment. Typically, a check is used. If so, go to the Write Checks screen. Use this screen even if you are paying electronically using funds from the checking account.
4. Enter all of the correct information in the top half of the screen, as you would for a normal transaction.
5. In the lower half of the screen, in the Expenses tab, select the other current liability account you created for this organization.
6. Make sure the amount is correct – if you pay the organization more than the balance in the other current liability account, that account will show a negative balance.
7. Click Save & New if you wish to do another. Click Save & Close if you are finished.
Using a pass-through account when there are multiple organizations
If you have many organizations that you are collecting money for, it might be too cumbersome to set each of them up on the Balance Sheet. Instead of doing that, consider creating one PTA as outlined in above, except don’t give it a specific name. Name it “Pass-through for multiple organizations,” or something similar. Put money into this account as outlined above.
When it’s time to pay one organization, that organization’s balance should first be verified. Here is how to do that.
1. Locate the pass-through account in the COA. Press Control-R to open the register.
2. Locate that organization’s name in the register. Highlight it and right click. Select QuickReport. QuickBooks displays a list of all transactions for that name appearing in this register. This shows the balance of the organization – what you owe. (Tip: if this is a negative number, then you paid the organization more money than you collected.)
3. Now the organization can be paid. Assuming the payment is made with a check (or some other withdrawal from the checking account) go to the Write Checks screen as shown above to record the payment to the organization. Be sure to use the correct organization name in the Pay To field, and to select the pass-through account in the Expenses tab.