How to Record an Agency or Pass-Through Transaction Where the NGO Is an Intermediary
Recording funds received where the NGO acts as an agent for a named beneficiary — no revenue is recognized.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cash | Asset (+) | 2,500.00 | - |
| Funds Held for Others | Liability (+) | - | 2,500.00 |
💡 Accountant's Note
If a donor says 'Give this to John Smith,' the NGO is just a middleman. No revenue is recognized; it is a liability until the cash is handed over.
Practitioner & Systems Framework
💻 ERP Architecture
Agency transactions are balance sheet events only — cash in, liability created; cash out, liability released. No revenue or expense flows through the income statement. The key test is whether the NGO has variance power — the ability to redirect the funds to a different beneficiary. If yes, it is a contribution (revenue). If no, it is an agency transaction (liability).
⚠️ Audit Flags
Auditors carefully assess variance power to determine the correct classification. An NGO that claims agency status to avoid recording revenue may actually have variance power and should recognize a contribution. The Funds Held for Others liability must be settled promptly — old, unremitted balances suggest either a collection failure or incorrect classification.
📄 Required Documentation
Donor letter specifying the intended beneficiary, variance power assessment, Funds Held for Others sub-ledger by beneficiary, remittance confirmation when funds are transferred, and timing of receipt to remittance.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.