Distribution Types, sometimes known as spending policies, define how the spendable balance of an endowed or quasiendowed fund is calculated.
Endowed funds are funds with a principal balance and a spendable balance (i.e. a certain amount of money that can be granted out every year or every quarter). Quasiendowed funds are nonendowed funds that do not have an actual spending limit but are given a spending policy for management or other purposes.
Traditional endowed funds will be the focus for this article.
Components of Distribution Types
There are three main components of distribution types.
 Type  How the spendable balance is calculated.
 Percent  How much of a fund's balance can be spent.
 Calculation Base  Type of fund balance that will be used to make the calculations.
Type
The Type field defines the type of calculation that will be used to calculate the spendable balance of a fund. The type that is selected dictates which fields need to be completed in the Options area.

avg_per_qtr  Average Per Quarter calculates the average of quarterend balances over a set number of quarters. The average is then multiplied by the percent field.
 This option is often used for funds with large balance fluctuations because it has the effect of "equalizing" the calculation.
 When average per quarter is selected, then enter the number of trailing quarters.

avg_per_yr  Average Per Year calculates the average of yearend balances over a set number of years. The average is then multiplied by the percent field.
 When average per year is selected, then enter the number of trailing years.
 When average per year is selected, then enter the number of trailing years.

percent  Percent calculates a percentage of the fund balance.
 This option does not use averages but instead calculates as a spot time.
 This option does not use averages but instead calculates as a spot time.
Percent
The percent field defines the percentage of a fund balance that can be spent. This must be defined for all types.
 Enter as a decimal (Ex: .02 = 2%)
Calculation Base
The Calculation Base refers to the type of fund balance that the system will look at when calculating the spendable balance of a fund.
If all five choices are not available in the Calculation Base dropdown, then restrictions are not set.

Bank and Investment Balance  Looks at fund assets that are specifically held within bank and investment accounts.
 For example, if an illiquid asset (such as a life insurance policy) is held within Other Current Assets, the Bank and Investment Balance option could be used to exclude the Other Current Assets account from the calculation and prevent the distributions from being inflated by the illiquid asset.
 If the Calculation Base field is left blank, then Bank and Investment Balance will be used.
 Principal Balance  Looks at the endowed portion of a fund.
 Default Balance  Looks at the retained earnings of a fund.
 Total Net Assets  Looks across all asset accounts.

By Account  Checks the designated accounts and calculates a spendable balance based on these accounts.

When this option is used and equity accounts for principal and default balances are selected, monitor any funds that have been created in the time frame for the distribution. The funds equity sections are updated at yearend with the closing retained earnings journal entry, which can make the calculations reflect portions moved to spendable only. In this case, the retained earning will calculate correctly the month after the books are closed. Consider using average per year versus average per quarter since the retained earning are posted at year end.

 Net Income  Looks at the previous year's net earnings.