Accounting for Churches: A Guide to Financial Stewardship

When accounting is incorrectly handled, a possible ramification is that the church could lose their tax exemption status. Fund accounting is the only appropriate and correct method to handle a not for profits’ ledgers. The church currently has $5,000.00 in the checkbook for the General Fund. The church receives a large donation (1 million) to add to the church building. The donor has restricted this money and given it the ‘purpose’ that it must be used for.

Donation and accounting funds – what happens at the end of the year?

For profit systems, for the most part, have one money pot where money comes in and out. Not for profits have numerous pots (ie. General, Youth, and Building) of QuickBooks money, each with a fund designation, that allows money to come in and out of just that pot (fund). In envelope budgeting, you would have multiple envelopes with sums of money for various purposes in your household. For example you would have one envelope for utilities, groceries, gas, mortgage, and so on. The importance of understanding these key areas — ie assets, revenues, liabilities and so on, can’t be stressed enough. To not understand them thoroughly, is akin to trying to do mathematical division when you haven’t learned addition, subtraction, and multiplication.

Why using budgets instead of financial statements is a mistake

While one major purpose of this letter is to thank the donor for their contribution, it should also function as a donation receipt. This way, if the donor wants to write their gift off as a charitable contribution when filing their personal tax return, they’ll have the documentation they need to do so. Most will say that fund accounting is harder to use, but it really is just a different way of thinking. It’s no different than a for profit system where you need to know the credit and debit to code the transaction right. Think of the fund as a category that encapsulates the transaction which keeps that transaction from affecting any other category (fund). The two types of funds give the ability to answer various questions.

• And the General fund report would show more money than it should in the checkbook.
• When a person is reconciling the transactions within the accounting system to their bank statement, several irregularities can be corrected.
• Implementing fund accounting on your statement of financial position and statement of activities will give a clear and precise snapshot of the church’s financial health.
• We also explore the role of pension funds and other funding sources for churches.
• Think of fund accounting more like each mission functioning as a separate company, with it’s own set of accounts.

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• Why can’t you look at the revenue account for the accounting fund to see how much was received for donations?
• This type of report shows how the organization is doing financially overall.
• Given these circumstances, it is not shocking when things go awry, and church congregations and pastors face financial challenges.
• If you find that your church is reliant on just one or two major funding sources, consider diversifying your revenue streams by exploring additional church fundraising ideas.
• We have to know not only how much is allocated to each ministry, but also how much we should be bringing in and how much we can spend in every area of our church.
• Typically, the more funds you have the more complicated the data entry becomes.

The earliest you see any numbers that are “real” is after the month of January is finished. Because budgets are created using proposed numbers the organization has to wait till after they start spending and receiving money in the new year. This is the accountability piece that the for profit world misses.

• Your church’s chart of accounts is essentially its financial directory.
• Getting leadership buy-in is crucial; make sure your pastor, board, and key volunteers understand both the short-term challenges and long-term benefits of making the switch.
• Using a fund based accounting system is the only way you can show them a financial statement for the Building fund and what its expenses and revenues were, separate from everything else.
• It doesn’t rely on the same processes for managing finances at a for-profit business.
• By leveraging technology, telling compelling stories, and following best practices, churches can secure the funding they need to carry out their mission and serve their communities.
• This ensures that your recent transactions are at the top of your mind.

For organizations tracking budgets and financials for grants, programs, departments, or multiple locations. Aplos is a robust accounting system that allows you to keep track of your grants, programs, and fundraising so you can give your board clarity on your finances. While church bookkeeping and accounting are both essential for effective financial management, the two functions are often confused. Additionally, regardless of organization-wide annual filing requirements, your church needs church accounting to help its employees file their individual income taxes.

• Churches must train and educate staff, ensuring they know how to use their financial technology and are updated on the latest compliance regulations.
• The government is giving you a huge break on taxes, thus you need to prove to them that your mission benefits humanity (ie. the community).
• Receiving donations is the largest part of the revenue of a church, and some guidelines go along with receiving those donations.
• To avoid these, churches need to plan their fundraising campaigns carefully, use clear and compelling messaging, and promote their campaign across multiple channels.
• This mistake is easily made within churches due to their trusting relationships with staff, board members, and volunteers.

What is worse, is that the church loses transparency with its donors, which breaches their trust. In the past, before software had the capability, churches would open up multiple bank accounts, one for each purpose (mission). At the time this was necessary to keep the money separate, although not required by banking rules or FASB. There just was no better way to Bookkeeping for Painters track the money as it was received or spent, by the church. Simply put, the software was not yet available to show the separation of monies.