Similar to other nonprofit organizations, churches must fund their mission while complying with a variety of record keeping requirements and laws. This means that they must keep accurate records of revenue collected, expenditures incurred, assets purchased and liabilities they are responsible for, so that they can produce financial statements for a variety of readers, whether that be the Board of Directors, the congregation, or an outside reader, such as a bank or governmental agency.
Church bookkeeping is a term often associated with this process of maintaining a church’s financial records. While bookkeeping is part of this overall process, here at ChurchShield, we prefer the term church accounting. Church accounting is a more encompassing process than just bookkeeping and includes not only the recording of revenues and expenditures referenced above, as well as the maintenance of balance sheet items such as assets, liabilities and funds.
Therefore, if you us hear us here at ChurchShield refer to church bookkeeping, we are referencing the introductory level of accounting service that we offer.
Learn more about bookkeeping for churches, what it means to outsource your church bookkeeping services, and understand if it is the correct route for your organization.
Key Elements of Bookkeeping for Churches
Church bookkeeping is often employed by smaller organizations where a record of assets, liabilities and funds is not necessary when producing financial statements for internal readers/stakeholders. Bookkeeping helps churches manage their cash flow and finances, while maintaining accountability with their congregations and donors but would not allow them to provide complete financial statement to outside readers.
Here are the key aspects to consider when comparing Church bookkeeping and accounting:
- Revenue (Bookkeeping and Accounting) – Typical forms of revenue for a church include tithes and offerings, building campaign donations, bookstore and café sales, childcare/school tuition, grants, etc.
- Expenditures (Bookkeeping and Accounting) – The costs associated with the operations of an organization are classified as expenses. Cash outflows such as rent, utilities, salaries and wages, mission donations, supplies, etc., all get recorded here.
- Fixed Assets and Depreciation (Accounting) – Assets are the items the church owns, both tangible and intangible, that have a useful life more than one year. Items such as land, buildings, building improvements, furniture, equipment, and vehicles fall under this category.
- Liabilities (Accounting) – Liabilities include financial obligations of the church that are required in the future. From short items such as Accounts Payable and payroll tax liabilities, to short term loans and long-term mortgages.
- Funds – Funds are the retained earnings of non-profits, making up the difference between the assets that a church has and its liabilities that are due. Many churches use what is known as fund accounting to break this amount out between different departments or ministries.
- Accrual Basis – Cash vs. Accrual Basis often gets confused with Bookkeeping vs Accounting. While it’s true that true cash basis accounting would have little to no need for a Balance Sheet, many churches operating on a Modified-Cash basis, where they record big ticket assets and liability items, but don’t aim to ensure that revenues and expenses are recorded in the period they are earned and/or incurred, rather recording them when they happen.
The Church Bookkeeping Process
As noted above, bookkeeping for churches is a term that is used to describe the process of maintaining revenues and expenses portion of a church’s financial records. This process involves:
- Establishing and maintaining a bookkeeping system – Typically speaking, most organizations use an accounting software (such as QuickBooks), to house their financial data. Maintaining a repeatable process for a church’s bookkeeping can help ensure that everything is properly recorded.
- Recording transactions – It is important to record all transactions in detail using the established system so that the organization has a record of all transactions as they happen.
- Reconciling the books – Comparing various source documents, such a bank statements, credit card statements, donor records, etc. to the bookkeeping system to ensure accuracy is the process known as reconciliation. We recommend doing this monthly. Should you come across any discrepancies or inaccuracies, it is important to investigate them so that the financial statements are correct.
- Producing financial statements – The most common report produced in the bookkeeping process is often a version a of an Income Statement. This report communicates the amount of income and expenses that an organization has for a set period of time. The net amount of income and expense is referred to as net income. If this report is produced on a strictly cash basis, then this report also communicates the organization’s cash flow for that some period.
Maintaining a standardized process will help the church ensure everything is accounted for, meeting compliance requirements, and also demonstrate transparency to the congregation. If your organization does not have the resources to maintain this process, you may want to consider outsourcing church bookkeeping.
When Should I Look Beyond Bookkeeping for Churches?
While bookkeeping and accounting utilize similar concepts, accounting can give a more thorough view of the church’s financial position.
Perhaps the biggest need for church accounting rather than bookkeeping, is when an audit or review is required. An audit or review is often a compliance requirement when an outside reader is involved, such as a bank for a mortgage or a governmental agency for a grant. Audits and reviews typically require accrual basis financial statements, though modified-cash basis may be accepted in some scenarios.
Church accounting is also preferable when considering the need for church leadership to be able to review the financial standing of the church year over year. Accounting, particularly accrual basis accounting, allows financial statements to ensure that revenue and expenses are recorded in the proper period, depreciate assets over their useful life and break out loan payments between principal and interest.
If accounting sounds more in line with what your church is looking for, a church accountant is the best solution. ChurchShield goes beyond church bookkeeping services and offers accounting so that our clients can get better insights into your data and reduce the stress you might face during auditing and reporting.
Get Much More Than Bookkeeping for Churches When You Work with ChurchShield
ChurchShield is your destination for church accounting, payroll, and other compliance needs. We have extensive experience, know industry best practices, and are well versed in the needs of churches.
Be sure to reach out to our team if you are interested in learning more about how church accounting can help your organization!
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