Borrowing from one fund to cover another
How a non-profit records money one fund lends another while a grant is late, with due-to and due-from accounts, journals and a trial-balance check.
By Achekam · · 5 min read · For Non-profit businesses in South Africa, Nigeria, Kenya
The funder has approved the second tranche, but the payment is stuck in its own approval process. Meanwhile the clinic outreach team still needs paying at the end of the month. The director decides that the general fund will carry the programme's costs for a few weeks and be paid back when the tranche arrives.
That is a sensible decision, and a common one. It becomes a problem only when nobody records it. Months later, the general fund looks short, the programme looks underspent, and nobody can say whether the money was ever returned.
This article explains how to record borrowing between funds in Achekam so that each fund's position stays readable and the loan is visibly repaid.
When a funder allows it, and when it does not
Before any money moves, check two things.
The grant agreement. Some agreements forbid the organisation from using the grant's money for anything else, even temporarily. Borrowing from a restricted grant to cover unrelated costs is the arrangement funders object to most, and in some agreements it is a breach. Borrowing in the other direction, from unrestricted funds to pre-finance a grant that is late, is usually less contentious, but read the agreement anyway; some funders will not reimburse costs incurred before a tranche is received.
Your own policy. The board, or whoever it delegates to, should approve inter-fund borrowing, with a limit and an expected repayment date. Record the decision in the minutes or a signed note. If your organisation has no policy, the first loan is a good moment to write one.
Where the agreement is silent, ask the funder's grants officer in writing. A short e-mail now is far better than a disallowed cost at the end-of-grant audit.
Due-to and due-from accounts
In fund accounting, a loan between funds is recorded with a pair of accounts:
- Due from the borrowing fund, an asset belonging to the lending fund: "the programme owes us";
- Due to the lending fund, a liability of the borrowing fund: "we owe the general fund".
Across the whole organisation the two cancel out, because the organisation cannot owe itself money. They exist so that each fund's position can be read on its own.
Your ledger starts from a standard chart of accounts, and accounts can be added, renamed or switched off. Add the pair for each fund relationship you need, and name them so the direction is obvious, for example "Due from Clinic Outreach grant" and "Due to General fund – Clinic Outreach". Switch them off once the loan is repaid and the balance is nil, so they do not invite reuse for something else.
The journal when cash is used across funds
How you record the loan depends on how your bank accounts are arranged.
If the grant has its own bank account, the general fund transfers cash into it. Record the transfer between the two bank accounts, then post a manual journal that recognises the loan:
- debit "Due from Clinic Outreach grant";
- credit "Due to General fund – Clinic Outreach";
- description: the board approval, the amount's purpose and the expected repayment date.
If all funds share one bank account, there is no transfer to record; the programme's costs are simply paid from the shared account while the grant's own receipts are short. Post the same pair of entries for the amount the general fund is carrying, so the shortfall is shown as a loan rather than hidden inside the programme's balance.
Every manual journal must balance, and one dated in a closed month is refused. Post the loan in the month the money actually moved.
Repaying when the tranche lands
When the tranche arrives, record it first in the grant's own income or liability account, as you would any tranche. Then repay the loan with a new journal in the opposite direction:
- debit "Due to General fund – Clinic Outreach";
- credit "Due from Clinic Outreach grant".
If the grant has its own bank account, transfer the cash back to the general fund's account too.
Notice that repayment is a new journal, not a reversal. A posted journal in Achekam is corrected only by reversal, and reversal is for mistakes. The loan was not a mistake; it happened and was repaid, and the ledger should show both events with their own dates.
If the tranche covers only part of the loan, repay what you can and leave the rest outstanding, with a note of when the balance will be cleared.
Showing the balance until it is cleared
The trial balance shows each account for all time, for a period or at a date, and says whether debits equal credits. That makes the loan easy to watch:
- Run the trial balance at month end and find the two inter-fund accounts.
- They should be equal and opposite. If they are not, a journal posted only one side, or posted to the wrong account.
- If the balance has not moved since the last month, ask why the repayment has not happened.
- Report any open inter-fund balance to the board with the original approval and the expected repayment date.
The general ledger lists every posted line, so anyone reviewing the loan can see each journal that built up and paid down the balance.
Planning so you borrow less
Inter-fund loans usually start as a cash problem that someone could have seen coming. You can set a budget per account and period and compare it with actual figures from the ledger, which helps show when a grant's spending will run ahead of its tranches. ACCA's article on cash budgets explains why an organisation prepares a cash budget and how to build one from expected inflows and outflows; a simple version, listing tranche dates against payroll dates, shows the gaps months in advance.
For laying out each fund's accounts, see keeping restricted funds apart in your chart of accounts, and for recording the tranche that repays the loan, recording a grant tranche that arrives in the bank.
If money has already moved between your funds this year without a record, post the loan now with today's understanding of it, and take the approval to your next board meeting.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
