Now that we know the differences between funds and COA from part one and experimented with a family analogy, part two, let’s use different names for the funds instead of “the mom fund” and “the dad fund”. Below we will use General Fund (GF) and Youth Fund (YF) to better represent a church instead of a family.
As stated in part one, when two COA’s are used for a transaction, it is called double entry accounting. In fund accounting, and IconCMO in particular, these transactions are also tagged by a church fund (GF or YF) to categorize them along with the two COAs. By tagging them with the church fund, it puts the accounting activity onto the appropriate financial statement – either the General Fund or Youth Fund financial statements in this case.
In most systems on the market, especially the retrofitted systems for non-profits or for-profit systems, the fund is not assigned — only the expenditure or revenue account. Without the additional fund assignment, determining what numbers should be on the General Fund’s Statement of Activity or Financial Position report is next to impossible.
Let’s look at an example how individual COA’s affect the Fund Balances using the same exact numbers as before, but change out the expense and fund names to what you would typically see in a church’s COA and it’s funds.
- The church’s checkbook has $1,500.00 total on Jan 1st, 2013 ($750.00 goes to the GF and $750.00 for the YF).
- The pastor goes on a trip and it cost $350.00 with the GF paying for it.
- The youth go for weekly party and the food cost is $20.00 and the YF is paying for it.
- The church pays for the food at the men’s meeting and it cost $45.00 with the GF paying for it.
- The youth go on a trip which cost $425.00 and the YF will pay for it.
Four separate checks are written out on two expenditures, a trip expense and the food expense. The GF and YF share a checkbook at the bank but they have different assets, liabilities, revenues, and expenses each month that each incurs individually as seen above. Additionally, there are some questions (similar to the family example) that get very complicated, like what fund is spending money, which fund is making more money, etc.
Some example questions may be
- How do you know what the pastor spent on travel?
- How much did the youth spend when they went on a trip?
- How much did the pastor or youth spend on food?
- How much did the entire organization spend on food?
- How much did GF and YF spend separately? And also together?
|Checking:||Expenses (5001 Trips):||Expenses (5002 Food)|
|Bal (01/01/2013) – $1,500.00 ($750 in GF, $750 in YF)||Bal (01/01/2013) – $0.00||Bal (01/01/2013) – $0.00|
|Pastor’s Trip – $350.00 (GF)||Pastor’s Trip – $350.00 (GF)||Youth Food – $20.00 (YF)|
|Youth Food – $20.00 (YF)||Youth Trip – $425.00 (YF)||Men’s Food – $45.00 (GF)|
|Youth Trip – $425.00 (YF)|
|Men’s Food – $45.00 (GF)|
|$1,500 – trips – movies = $660||$0.00 + $350 + $425 = $775||$0.00 + $20 + $45 = $65|
|Ending Balance = $660||Total Spent = $775||Total Spent = $65|
Using the above table with the expenses and fund designation (GF or YF), can we answer the same questions used in the family analogy but apply it to a church setting? Yes. Let’s get to it.
- How do you know what the pastor spent on his trip?
- Answer: looking at the trip expense, find the one marked with a “GF”– it is $350.00.
- How much did the youth spend on their trip?
- Answer: looking at the trip expense, find the one marked with a “YF” – it is $425.00.
- How much did each spend on food?
- Answer: looking at the food expense the youth spent $20.00 while the men spent $45.00.
- How much did the entire organization spend on food?
- Answer: looking at the total for the expense line and it is $65.00.
- How much did the GF and YF spend separately (a)? And also together (b)?
- Answer: (a) looking at each GF expense it would be $350.00 + $45.00 = $395.00, and looking at each YF expense it would be $425.00 + $20.00 = $445.00. (b) What they spent together is a grand total of $840.00 which leaves $660.00 in the checkbook ($1500.00 – $840.00 = $660.00).
Explanation: Before the transaction the General Fund had $750.00 and the Youth Fund had $750.00 which would total $1,500.00 for the entire organization’s checkbook. This was similar to the family’s entire checkbook when the Dad and Mom Fund both had $750.00 each to start. The balances for each fund after the above transactions, would be as follows.
- The GF would have $355.00 remaining ($750.00 – $350.00 – $45.00 = $355.00).
- The YF would have $305.00 remaining ($750.00 – $425.00 – $20.00 = $305.00).
- There’s a combined balance in the organization’s checkbook of $660.00 for both funds ($1,500.00 – all expenses = $660.00).
In this scenario there are essentially 3 separate accounting balances and activities being maintained – the overall balance for the church ($660.00), the General Fund balance ($355.00), and the Youth Fund balance ($305.00). Balances are represented on the Balance Sheet Report. The separate accounting transactions for the General Fund is the $350.00 and $45.00; and for the Youth Fund it is the $425.00 and $20.00. This activity is shown on what most people call the Profit and Loss Report. Additionally, the balances or activity can be consolidated to provide all this information on one report to the organization. We typically call this an “All Funds” report.
Explanation of Financial Statements.
Knowing what kind of individual accounts within the COA belong on different financial statements can help the user greatly in any accounting system – especially in Fund Accounting. For example, the assets and liabilities are balance sheet accounts, therefore they show up on the Balance Sheet. This is because these accounts carry a balance from year to year, unlike revenues and expenses. Revenues and expenditures are never shown on the Balance Sheet report but instead are shown on the profit and loss (P/L) statement. If the current financial statements show all of these on one report – your organization is not creating reports that are compliant to standard accounting principles.
Above we used the common terminology for the financial statements – Balance Sheet and Profit and Loss (P/L). We should note that in church accounting these are actually named differently, but the same rules apply as to what accounts show up on each. In church accounting, the Balance Sheet is called Statement of Financial Position, and for the Profit and Loss it is called Statement of Financial Activities. There is another required report, called the Cash Flow Report, which is not discussed in this blog series but required.
For more detailed information
- on a Balance Sheet you can review our past blog on ‘Why a Church Balance Sheet is like a Pizza Pie’.
on a Statement of Activities you can review our past blog on ‘Run your church like the Pros do in the “The Big Game” this weekend’.