There are some common accounting mistakes churches make for a variety of reasons. Maybe it is because the software they are using couldn’t handle the various situations that are needed. It could be a church process that was made a long time ago and when questioned — you get the typical answer, “that’s how we have always done it”. Current church processes are not changed as technology and other societal trends improve or empower the church to do more with less work.
In this blog we are going to tackle the checking account issues we see when clients come onto the IconCMO accounting system. Below are three common mistakes with checkbooks that churches deploy to keep their money separated.
Multiple checking accounts at the bank –
Does your church have multiple checking accounts? We see this one a lot. An example is the General and Youth Fund will have their own checking account. This gives the church the ability to see the balance in the checkbook for that fund. Unfortunately, they equate a fund to a checkbook which is incorrect. Checkbooks control one thing – the money inside them and aren’t funds. In other words, they are only an account among many in the chart of accounts (COA). Checkbooks do not control the other assets like fixed assets, liabilities, revenues or expenditure accounts.
Church funds control more than just checkbooks. Funds oversee everything like fixed assets, long term liabilities, all expenses and revenue, etc., in addition to just the checkbooks. See below for a visual representation which shows the funds (ie: Building, General, Youth) over the rest of the COA. For more information on how funds interact with the COA line items you may want to read our series on Easy Church Fund Accounting.
With solutions like IconCMO, you can have one checkbook with multiple funds (either restricted, unrestricted, or temporarily restricted) and still know the balances and activity of each fund, keep the money separate as per FASB guidelines, and budget by fund. This is called fund accounting and is required for churches. In addition, current software solutions can also roll the dollar figures up into one organizational report (all fund(s) report) to show how the they are doing as a whole.
Multiple checking accounts when there is only one physically at the bank –
This is another one that will actually cause big issues down the road when it comes to reconciling a checkbook. The typical scenario – the church puts into the COA multiple checking accounts like this – Wells Fargo – Designated, Wells Fargo – General, Wells Fargo – Unrestricted, and Wells Fargo – Building. Here is the issue – banks don’t break up your transactions into the categories that you have (ie. Wells Fargo – Unrestricted vs Wells Fargo – Restricted) because they see it as ‘one’ checking account. All they care about is if you have money in that ‘one’ checking account. This leaves the user to break out the bank statement by each transaction into one of the categories they are using and then adjust the amounts for the deposits and checks/debits. This creates a lot of manual work for the user, when a fund accounting system does this easily.
The solution is to have one checking account (which is what is physically at the bank) and use funds to break up the amounts within the checkbook. By using funds, you can see balances for each fund and still reconcile under one checkbook using the bank’s statement numbers – without breaking out each transaction.
Sub accounts of checking accounts –
Checking accounts are not suppose to have sub accounts. Churches did this in the past to keep their money separate like the above examples , but then roll up the amounts into the primary checking account. Again this has issues with the reconciling the checking accounts – which are all now sub accounts and forces the user to break out their statement by each transaction to match the sub accounts in the accounting system.
A user should only put checking accounts into the COA, if you actually have that physical account at the bank. In addition if you are coming from another system and going to a true fund accounting system, seriously consider closing down all checking accounts except one, then move the money from the closed accounts to the primary checking account, and apply the money to the appropriate fund. Sound hard? – not on IconCMO, since we have a transfer window that can transfer the money from funds and also checkbooks.
Try our Church Management Software free for 14 days.