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The “You don’t have to be a CPA to learn Fund Accounting” Series: Part 4

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The way churches structure their accounting really starts at what the accounting standards dictate and what the users want to see in the reports. In essence, the church must start at the end – the reports – and work their way backwards to see what will produce the desired result.

Fund Accounting
You don’t have to be a CPA to learn Fund Accounting*

Now that we have examined the definitions and taken a look at the standards, we will take a look at some common scenarios for churches and see how they could best record the transaction.

Important: This is the last post in a four-part series. If you missed it, make sure to read the first post, The “You don’t have to be a CPA to learn Fund Accounting” Series: Part 1 before moving on to the following scenario!

Keep in mind that in accounting, as in life, there is sometimes more than one way to get the result you want! We will first present the scenario and then illustrate several different ways in which the transaction could be handled. We will also give pros and cons to each method presented.

Fund Accounting Scenario:

During the month of March, the church received total cash donations of $6,000. Of this total, there were no donor restrictions on $3,000 of the money received. A long-time church member gave $1,000 to be spent on a stained glass window for the church. The remaining $2,000 was given by a number of members and designated to update the video, sound, and technology systems used during worship.

The church has not previously received donations for either a stained glass window or for a technology systems upgrade, but they agreed to accept these donations.  The church currently has one checking account that consists entirely of unrestricted general funds and one savings account that consists entirely of restricted building funds.

Solution #1:

The church could set up separate Contribution funds called “General Offerings”, “Stained Glass Window”, and “Technology Systems Upgrade” in the contribution module.

They could also set up three Accounting funds called “General Fund”, “Stained Glass Window Fund”, and “Technology Upgrade Fund” in the accounting module. The “General Fund” would be designated as Unrestricted and the “Stained Glass Window” and “Technology Update” would be designated as Temporarily Restricted. They would also set up a general ledger revenue account called “Contribution Revenue” in the chart of accounts.

They could use the accounting link feature in the contributions module and link all of these contribution funds to the “Contribution Revenue” general ledger account. All of the money would be deposited into the existing checking account.

The linking mechanism creates the following accounting entries for this transaction:

Debit Credit Fund Assignment
Cash – Checking $3,000 General Fund
Contributions Revenue $3,000 General Fund
Cash – Checking $1,000 Stained Glass Window Fund
Contributions Revenue $1,000 Stained Glass Window Fund
Cash – Checking $2,000 Technology Upgrade Fund
Contributions Revenue $2,000 Technology Upgrade Fund

 

Pros:

  • Contributions are only entered once because of the linking between the contribution and the accounting modules.
  • Any donations made to the different contribution funds listed, will be detailed on the contribution statement given to the donor at the end of year.
  • The $6,000 is correctly reported on the financial statement as revenue.
  • The cash and revenue are properly allocated between unrestricted (General Fund) and temporarily restricted funds (Stained Glass Window and Technology Upgrade funds).
  • The church can keep track of what money came in and how the money was spent for each fund by running a Statement of Financial Position (Balance Sheet) and a Statement of Activities (Income Statement) per accounting fund.
  • Linking different contribution and accounting funds to one general ledger account streamlines the chart of accounts and does not make financial statements unnecessarily cumbersome.
  • The church can create different accounting funds while still maintaining just one checkbook.

Cons:

  • None

Solution #2:

The church could set up the separate Contribution funds as outlined above. They could also decide to open two additional checking accounts – one for the Stained Glass Window money and one for the Technology Upgrade money. They could then set up separate general ledger revenue accounts called “Contributions Revenue” for the general offerings, “Stained Glass Window Revenue” for the stained glass window donations, and “Technology Upgrades Revenue” for the technology upgrades donations.

They could also set up an Accounting fund called “General Fund” in the accounting module. This “General Fund” would be designated as an Unrestricted Net Asset. They would assign all of the revenue accounts to the General Fund. When money is spent for the stained glass window, it is paid out of the separate checkbook and a separate expense account is added to the chart of accounts called “Stained Glass Window Repairs” expense. They do not use the linking mechanism because it would be more difficult with more than one checkbook available.

The church would need to make the following manual accounting entries for these transactions:

Debit Credit Fund Assignment
Cash – Checking #1 $3,000 General Fund
Contributions Revenue $3,000 General Fund
Cash – Checking #2 $1,000 General Fund
Stained Glass Window Revenue $1,000 General Fund
Cash – Checking #3 $2,000 General Fund
Technology Upgrade Revenue $2,000 General Fund

 

Pros:

  • Any donations made to the different contribution funds listed, will be detailed on the contribution statement given to the donor at the end of year.
  • The $6,000 is correctly reported on the financial statement as revenue.

Cons:

  • The church has added valuable time and money to limited resources by adding two additional checking accounts. These checking accounts need to be maintained, check stock ordered, and the bank statements reconciled.
  • The church is not able to produce financial statements by fund.
  • The church is not properly reporting their Net Asset (equity) section of their Statement of Financial Position (Balance Sheet). Accounting guidelines require that Net Assets be presented as unrestricted, temporarily restricted, or permanently restricted. With this solution, they are showing everything as unrestricted.

Solution #3:

Same Solution as #2 above, except that the church sets up two new general ledger liability accounts for the stained glass window donations and for the technology upgrade donations. These general ledger accounts are “Stained Glass Window Payable” and “Technology Upgrade Payable”. When money is spent for the stained glass window, it is paid out of the separate checkbook and it is recorded as a debit to the liability account.

The church would need to make the following manual accounting entries for these transactions:

Debit Credit Fund Assignment
Cash – Checking #1 $3,000 General Fund
Contributions Revenue $3,000 General Fund
Cash – Checking #2 $1,000 General Fund
Stained Glass Window Liability $1,000 General Fund
Cash – Checking #3 $2,000 General Fund
Technology Upgrade Liability $2,000 General Fund

 

Pros:

  • Any donations made to the different contribution funds listed will be detailed on the contribution statement given to the donor at the end of year.

Cons:

  • The church has added valuable time and money to limited resources by adding two additional checking accounts. These checking accounts need to be maintained, check stock ordered, and the bank statements reconciled.
  • The church is not able to produce financial statements by fund.
  • The church is not properly reporting their Net Asset (equity) section of their Statement of Financial Position (Balance Sheet). Accounting guidelines require that Net Assets be presented as unrestricted, temporarily restricted, or permanently restricted. With this solution, they are showing everything as unrestricted.
  • The church is not properly reporting the stained glass window or the technology upgrade donations. These amounts should be recorded as revenue and not as liabilities.

As our examples in this series illustrate, there are often many ways to get to the seemingly same end result.

At first glance, it appeared the solutions would all yield the same results, but after further study, not all of them produced the exact same results. Even those that did yield the same results had pros and cons for each.Time should be spent looking at how your accounting system is structured and asking yourself the following questions:

      • Am I in compliance with accounting standards?
      • Am I making the most efficient use of our time, talent, and resources or can software help me streamline some of our current processes?
      • Am I producing financial statements and reports that are meaningful to users (e.g. pastor, board of directors, finance committee, church members)?

If you are using a good church accounting software package and organizing it correctly, you should be able to answer “yes” to all of the above questions.

Make sure to subscribe via email or RSS so you don’t miss anything!

Ready to try Fund Accounting? Sign up for a FREE 10-day trial of IconCMO, the web-based church management software.

This post was written by Karla, an accountant with Icon Systems:

Karla is a CPA licensed in the states of Minnesota and North Dakota and has over 20 years of accounting experience. She has a servant’s heart for working with churches. When not at work, she enjoys gardening, reading, Bible study, and spending time with her friends and family.

 

The “You don’t have to be a CPA to learn Fund Accounting” Series: Part 3

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Fund Accounting
You don’t have to be a CPA to learn Fund Accounting*

The way churches structure their accounting really starts at what the accounting standards dictate and what the users want to see in the reports. In essence, the church must start at the end – the reports – and work their way backwards to see what will produce the desired result.

Now that we have examined the definitions and taken a look at the standards, we will take a look at some common scenarios for churches and see how they could best record the transaction.

Important: This is part three of a four-part series. If you missed it, make sure to read the first post, The “You don’t have to be a CPA to learn Fund Accounting” Series: Part 1 and Part 2 before moving on to the following scenario!

Keep in mind that in accounting, as in life, there is sometimes more than one way to get the result you want! We will first present the scenario and then illustrate several different ways in which the transaction could be handled. We will also give pros and cons to each method presented.

Fund Accounting Scenario:

The church received total offerings of $15,000 for “special” services over the course of a year. The “special” services included Thanksgiving, Missionary Revival Week, Lent, and Summer Outdoor Worship. There are no donor-imposed restrictions on the money received, but the church would like to keep track of what money came in for each special service.

Solution #1:

The church could set up four separate Contribution funds called “Thanksgiving”, “Missionary Revival Week”, “Lent” and “Summer Outdoor Worship” in the contribution module. They could also set up an Accounting fund called “General Fund” in the accounting module. This “General Fund” would be designated as an Unrestricted Net Asset. They would also set up a general ledger revenue account called “Contribution Revenue” in the chart of accounts. They could use the accounting link feature in the contribution module and link all of these contribution funds to the “Contribution Revenue” general ledger account.

The linking mechanism creates the following accounting entry for this transaction:

Debit Credit Fund Assignment
Cash – Checking $15,000 General Fund
Contributions Revenue $15,000 General Fund

Pros:

  • Contributions are only entered once because of the linking between the contribution and the accounting modules.
  • Any donations made to the four contribution funds listed, will be detailed on the contribution statement given to the donor at the end of year.
  • The $15,000 is correctly reported on the financial statement as revenue.
  • The revenue is assigned to the General Fund which is classified as unrestricted.
  • The church can keep track of what money came in per “special” service by running detailed reports in the contribution module.
  • Linking different contribution funds to one general ledger account and one accounting fund streamlines the chart of accounts and does not make financial statements unnecessarily cumbersome.

Cons:

  • The church will not be able to look at the financial statements to see what has been given for each of the four “special” services.

Solution #2:

The church could set up four separate Contribution funds called “Thanksgiving”, “Missionary Revival Week”, “Lent” and “Summer Outdoor Worship” in the contribution module. They could also set up an Accounting fund called “General Fund” in the accounting module. This “General Fund” would be designated as an Unrestricted Net Asset. They would also set up a separate general ledger revenue account for each “special” service in the chart of accounts. They could use the accounting link feature in the contribution module and link all of these contribution funds to the appropriate general ledger revenue account.

The linking mechanism creates the following accounting entry for this transaction:

Debit Credit Fund Assignment
Cash – Checking $15,000 General Fund
Thanksgiving Service Revenue $5,000 General Fund
Missionary Revival Revenue $4,500 General Fund
Lent Service Revenue $3,500 General Fund
Summer Outdoor Revenue $2,000 General Fund

Pros:

  • Contributions are only entered once because of the linking between the contribution and the accounting modules.
  • Any donations made to the four contribution funds listed, will be detailed on the contribution statement given to the donor at the end of year.
  • The $15,000 is correctly reported on the financial statement as revenue.
  • The revenue is assigned to the General Fund which is classified as unrestricted
  • The church can keep track of what money came in per “special” service by running detailed reports in the contribution module.
  • The church can also keep track of what money came in per “special” service by   looking at the revenue section of the financial statement.

Cons:

  • The church’s financial statements may become too cumbersome if too many general ledger accounts are added. This example only concerned tracking four “special” services, but can you imagine the length of the chart of accounts and the corresponding financial statements if the church had wanted to track fifty or more “special” services?
  • The church has added to their chart of accounts and made their financial statements more detailed for something they could have already obtained from a report from the contribution module.

As the examples throughout this series will illustrate, there are often many ways to get to the seemingly same end result.

The solutions outlined in this example each handle the same situation differently. Good software should allow you to weigh the pros and cons and choose the solution that is right for your church. Time should be spent looking at how your accounting system is structured and asking yourself the following questions:

      • Am I in compliance with accounting standards?
      • Am I making the most efficient use of our time, talent, and resources or can software help me streamline some of our current processes?
      • Am I producing financial statements and reports that are meaningful to users (e.g. pastor, board of directors, finance committee, church members)?

If you are using a good church accounting software package and organizing it correctly, you should be able to answer “yes” to all of the above questions.

Make sure to subscribe via email or RSS so you don’t miss anything!

Ready to try Fund Accounting? Sign up for a FREE 10-day trial of IconCMO, the web-based church management software.

This post was written by Karla, an accountant with Icon Systems:

Karla is a CPA licensed in the states of Minnesota and North Dakota and has over 20 years of accounting experience. She has a servant’s heart for working with churches. When not at work, she enjoys gardening, reading, Bible study, and spending time with her friends and family.

Next: The “You don’t have to be a CPA to learn Fund Accounting” Series: Part 4

The “You don’t have to be a CPA to learn Fund Accounting” Series: Part 2

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Fund Accounting
You don’t have to be a CPA to learn Fund Accounting*

The way churches structure their accounting really starts at what the accounting standards dictate and what the users want to see in the reports. In essence, the church must start at the end – the reports – and work their way backwards to see what will produce the desired result.

Now that we have examined the definitions and taken a look at the standards, we will take a look at some common scenarios for churches and see how they could best record the transaction.

Important: This is part two of a four-part series. If you missed it, make sure to read the first post, The “You don’t have to be a CPA to learn Fund Accounting” Series: Part 1 before moving on to the following scenario!

Keep in mind that in accounting, as in life, there is sometimes more than one way to get the result you want! We will first present the scenario and then illustrate several different ways in which the transaction could be handled. We will also provide pros and cons to each method presented.

Fund Accounting Scenario:

The church receives a total of $1,000 on a particular Sunday. There are no donor-imposed restrictions on the money.

Solution #1:

The church could set up a Contribution fund called “General Offerings” in the contribution module. They could also set up an Accounting fund called “General Fund” in the accounting module. This “General Fund” would be designated as an Unrestricted Net Asset. They would also set up a general ledger revenue account called “Contribution Revenue” in the chart of accounts. They could use the accounting link feature in the contributions module and link “General Offerings” to the “Contribution Revenue” general ledger account.

The linking mechanism creates the following accounting entry for this transaction:

Debit Credit Fund Assignment
Cash – Checking $1,000 General Fund
Contributions Revenue $1,000 General Fund

Pros:

  • Contributions are only entered once because of the linking between the contribution and the accounting modules.
  • The donor will receive on his year end contribution statement the $1,000 listed under the “General Offerings” category.
  • The $1,000 is correctly reported on the financial statement as revenue.
  • The revenue is assigned to the General Fund which is classified as unrestricted.

Cons:

  • None

Solution #2:

This is the same solution as the first, except the church does not utilize the linking feature between the contribution and accounting modules. After the $1,000 is recorded in the contribution module, the church will have to go into the accounting module and manually make the following general journal entry:

Debit Credit Fund Assignment
Cash – Checking $1,000 General Fund
Contributions Revenue $1,000 General Fund

Pros:

  • The donor will receive on his year end contribution statement the $1,000 listed under the “General Offerings” category.
  • The $1,000 is correctly reported on the financial statement as revenue.
  • The revenue is assigned to the General Fund which is classified as unrestricted.

Cons:

  • Since the linking mechanism was not used, the $1,000 has to be entered twice: once into the contribution module and again into the accounting module. This increases the amount of time needed and increases the risk of errors being made.

As the examples throughout this series will illustrate, there are often many ways to get to the seemingly same end result.

Both solutions outlined in this example use a different way to reach the same result.  The first solution has some very clear options, but may not be the way your church chooses to function. Good software should allow you to use either solution.  Time should be spent looking at how your accounting system is structured and asking yourself the following questions:

      • Am I in compliance with accounting standards?
      • Am I making the most efficient use of our time, talent, and resources or can software help me streamline some of our current processes?
      • Am I producing financial statements and reports that are meaningful to users (e.g. pastor, board of directors, finance committee, church members)?

If you are using a good church accounting software package and organizing it correctly, you should be able to answer “yes” to all of the above questions.

Make sure to subscribe via email or RSS so you don’t miss anything!

Ready to try Fund Accounting? Sign up for a FREE 10-day trial of IconCMO, the web-based church management software.

This post was written by Karla, an accountant with Icon Systems:

Karla is a CPA licensed in the states of Minnesota and North Dakota and has over 20 years of accounting experience. She has a servant’s heart for working with churches. When not at work, she enjoys gardening, reading, Bible study, and spending time with her friends and family.

Next: The “You don’t have to be a CPA to learn Fund Accounting” Series: Part 3

The “You don’t have to be a CPA to learn Fund Accounting” Series: Part 1

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In today’s economy, churches often compete with other charitable organizations for valuable member donations. If members are experiencing financial setbacks, they may have less money allocated toward charitable giving. Churches will want to make sure they have their contribution and accounting systems set up correctly so that member donations are accurately recorded and contribution statements are presented in a timely manner to donors at the end of the year. If members perceive that the system is inaccurate or in any way a burden, they may decide to take their donations elsewhere. Don’t let this happen to your church! This series will address how churches can structure and organize their contribution and accounting funds and systems for maximum effect.

Fund Accounting
You don't have to be a CPA to learn Fund Accounting*

Since churches are largely funded by donations, it is important to take a look at how software systems, such as IconCMO, can be set up regarding contributions and financial statement reporting. A good church software system should allow the user to set up contribution funds, accounting funds, and general ledger accounts that all link together.

 

To gain a further understanding, let’s first define some terms:

A contribution fund is a fund that is set up within the contribution module of the software package. It is used to keep track of donation and report back to the donors how much and into which areas they donated money (e.g. general operations, a particular memorial, the youth fund).

At the end of the year, the contribution funds will be listed on the individual member contribution statements and will provide a total per fund along with an overall yearly total of contributions made. Notice there has been no mention made of what accounting fund or what general ledger account the contribution fund should be posted to. That will come later in the series. For now, the contribution funds stand alone – except to say that when contributions are entered into a software system it would be nice if they didn’t have to be entered twice (i.e.once in a contribution module and again in the accounting module). A good church software system will allow the contributions entered in the contribution module to flow directly into the accounting module; therefore eliminating the need to enter the contributions twice.

An accounting fund is a means by which the church can track the sources and uses of cash according to if they are unrestricted, temporarily restricted, or permanently restricted. This is in accordance with generally accepted accounting principles (GAAP).

In 1993, the Financial Accounting Standards Board (FASB) issued Statement 117 Financial Statements of Not-for-Profit Organizations. This statement introduced the idea of assets, liabilities, and net assets.

Net assets is the term given to the equity section of the balance sheet-renamed the Statement of Financial Position.

Net assets are classified based on the presence or absence of donor-imposed restrictions. These classifications are: (1) unrestricted, (2) temporarily restricted, or (3) permanently restricted. Definitions of each are as follows:

Unrestricted Net Assets are net assets that are neither temporarily restricted nor permanently restricted. Therefore, they include all net assets with uses not restricted by donors or by law (i.e. a donor gave money to the church and did not stipulate how the money was to be spent.) The general fund is an example of an unrestricted net asset.

Temporarily Restricted Net Assets are assets whose use is limited by either donor-imposed time or purpose restrictions. Time restrictions require resources to be used within a certain period of time or after a specified date. Purpose restrictions require resources to be used for a specified purpose (i.e. a donor gave money to the church to purchase a new organ: once the organ is purchased, the restriction is released.)

Permanently Restricted Net Assets are those that the donor stipulates must be maintained by the organization in perpetuity. Permanently restricted net assets increase when organizations receive contributions for which donor-imposed restrictions limiting the organization’s use of an asset or its economic benefits neither expire with the passage of time nor can be removed by the organization’s meeting of certain requirements (i.e. a donor gave money to the church for the purpose of …).

It should be stressed again that the classification between the three categories of accounting funds is based on the restrictions imposed by the donor and not by the church. Accounting standards require these three classifications of net assets to appear separately in the net asset (equity) section of the Statement of Financial Position (Balance Sheet). This means that if they appear in the liability section of the balance sheet, the financial statement is not in conformity with accounting standards.

The Chart of Accounts

General ledger accounts are used to keep track of the financial transactions of the church by five main categories: assets, liabilities, net assets, revenue, and expenses. Within these categories, there can be many accounts. All of the general ledger accounts together will make up the financial statements. An example of a general ledger account is “Insurance Expense” which keeps track of how much insurance the church pays over the course of a year. A good church software system will allow the user to set up a general ledger account and assign different accounting funds to it.

For example, there can be an “Insurance Expense” account in the unrestricted fund and in the restricted fund. Once this can happen, it is not only possible to prepare a “consolidated” Statement of Financial Position (Balance Sheet) and a “consolidated” Statement of Activities (Income Statement), but it is also possible to prepare a Statement of Financial Position and a Statement of Actives for each accounting fund individually, which is required by accounting standards.

Conclusion

The way churches structure their accounting really starts at what the accounting standards dictate and what the users want to see in the reports. In essence, the church must start at the end – the reports – and work their way backwards to see what will produce the desired result.

Now that we have examined the definitions and taken a look at the standards, we will take a look at some common scenarios for churches and see how they could best record the transaction. Keep in mind that in accounting, as in life, there is sometimes more than one way to get the result you want! For the next three weeks, we will present one scenario each week and illustrate several different ways in which the transaction could be handled. We will also give pros and cons to each method presented.

Make sure to subscribe via email or RSS so you don’t miss anything!

Ready to try Fund Accounting? Sign up for a FREE 10-day trial of IconCMO, the web-based church management software.

This post was written by Karla, an accountant with Icon Systems:

Karla is a CPA licensed in the states of Minnesota and North Dakota and has over 20 years of accounting experience. She has a servant’s heart for working with churches. When not at work, she enjoys gardening, reading, Bible study, and spending time with her friends and family.

Next: The “You don’t have to be a CPA to learn Fund Accounting” Series: Part 2

7 Ways IconCMO Can Save You Money

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Here are just a few ways your church can use IconCMO, a web-based church management solution, to  reduce some expenses and save a few trees along the way. This list is certainly not exhaustive, so please feel free to comment and share your own money-saving solutions!

  1. Save electronic copies of reports and records instead of printing. Only make hard-copies of really important documents and things you know you will need later. Who actually enjoys filing anyway? (Save $$ spent on paper, printer ink, and time spent filing.)
  2. Give church members the option to receive email newsletters bulletins, and contribution statements. Impressive full-color newsletters and flyers can be created using Microsoft Word or Publisher and converted to PDF format and attached to an email message. (Save $$ spent on postage, envelopes, paper, printer ink, and time spent stuffing envelopes.)
  3. Use the IconCMO Calendar on the church’s website to share an updated event schedule. (Save $$ spent on paper and printer ink.)
  4. Use a debit card or schedule automatic electronic payments instead of writing paper checks. Many vendors (including Icon Systems!) offer online billing instead of paper statements. (Save $$ spent on paper checks, postage, and envelopes.)
  5. Have church members use the IconCMO self-service login to email themselves contribution statements and update their information. (Save $$ spent on paper, envelopes, postage, time spent updating member profiles.)
  6. Email reports to board members and bring a laptop or tablet to meetings to make immediate changes. Updated reports can be emailed after the meeting. (Save $$ spent on paper and printer ink.)
  7. Web-based software allows you to work anywhere and at any time so you can save time and money driving to the church. Even just choosing to telecommute once a week will help lower gas expenses and reduce your carbon footprint. (Save $$ spent on transportation, time spent commuting to the church office.)

"Your church can save money and trees by using IconCMO!"

Bonus Tip: Make sure to print on both sides of the paper if you do have to print something. This can also save money on postage by reducing the overall weight of the letter.

Run your church like the Pros do in “The Big Game” this weekend!

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Statement of Activities

The Statement of Activities is the non-profit equivalent to an Income Statement and was developed so organizations could track their revenues and expenses by fund. It is a required financial statement for any size non-profit organization just like the Statement of Financial Position – see how a church’s balance sheet is like a pizza pie! To help clarify how a Statement of Activities works, we will compare it to “The Big Game”. Just like football, teams are penalized when they don’t follow the rules, non-profits can have expenditures paid from the wrong ministry, revenue mismanagement, and other problems which can invoke penalties.

To help clarify fund accounting, let’s pretend the teams represent the revenue/expenses:

Every team has its own sources of revenue and its own expenses. Let’s use the teams from New York (NY Fund) and New England (NE Fund) to represent the funds in the church. The following revenue and expense transactions happened between the date Feb 1st and Feb 29th of 2012.

In preparation for The Big Game, each team has their revenues and expenses:

New York Team
Revenue
T-Shirt $1,000.00
Ticket Sales $1,200.00
Expenses
Bus Travel $1,500.00
Airplane Travel  $0

 

New England Team
Revenue
T-shirt $2,500.00
Ticket Sales $1,000.00
Expenses
Bus Travel  $0
Airplane Travel $3,000.00

 

The Statement of Financial Activities is created based on a date range and not an end date like the Statement of Financial Position (church balance sheet). The above revenues and expenses happened during the month of Feb 2012 (leap year).

Both teams can incur expenses for airplane travel, bus travel, or both; however, in the month of February, one team traveled by bus while the other traveled by airplane. Both teams made revenue in T-shirt and ticket sales.

How would the Statement of Activities look for each team?

 

New York Team

Statement of Activities

Month Ended February 29, 2012
Revenue
T-shirt $1,000.00
Ticket Sales $1,200.00
Revenue Total $2,200.00
Expenditures
Bus Travel $1,500.00
Airplane Travel $0.00
Expenditure Total $1500.00
Total Net Revenue $700.00

New England Team

Statement of Activities

Month Ended February 29, 2012
Revenue
T-shirt $2,500.00
Ticket Sales $1,000.00
Revenue Total $3,500.00
Expenditures
Bus Travel $0.00
Airplane Travel $3,000.00
Expenditure Total $3000.00
Total Net Revenue $500.00

 

Looking at the above examples would answer questions like which team may need some financial support from the league. The commissioner, Roger Goodell, can review these individual statements and see which teams are hurting financially or which teams are able to cover their expenses. In this case, the New England team would need some help financially to keep pace with the New York team.

What would a consolidated Statement of Activities look like? By answering this question, Roger Goodell can review how the football organization is doing overall and report to the various stakeholders.

Football Organization

Consolidated Statement of Activities

Month Ended February 29, 2012
Revenue
T-shirt $3,500.00
Ticket Sales $2,200.00
Revenue Total $5,700.00
Expenditures
Bus Travel $1,500.00
Airplane Travel $3000.00
Expenditure Total $4,500.00
Total Net Revenue $1,200.00

 

On the consolidated statement, every expense and revenue would be listed on one line combining the individual items from the prior two statements. So for example, T-shirt sales were $1,000.00 (for the New York team) and $2,500.00 (for the New England team). The consolidated statement would show $1,000.00 + $2,500.00 = $3,500.00. The same method is used for each line item on the Statement of Activities.

Imagine if you had this type of reporting for your various ministries and your organization overall? The ministry leaders would know instantly what is coming in for revenues and what is going out for expenses in each ministry. The church board would have a consolidated statement showing how the organization is doing over all.

Advanced Setup:

Generic accounts minimize the Chart of Accounts and simplify reporting (i.e. having one Travel Expense instead of a NY Travel Expense and a NE Travel Expense). The following example will show a travel expense that is split between the NE team and the NY team funds. Notice the same generic accounts – T-shirt sales, ticket sales, bus travel and airplane expenses – are used for both funds.

Income Transactions for the T-shirt Revenue account:

Debit Credit Fund
Checking $1,000.00 $1,000.00 NY Team
T-shirt Revenue $1,000.00 $1,000.00 NY Team
Checking $2,500.00 $2,500.00 NE Team
T-shirt Revenue $2,500.00 $2,500.00 NE Team

 

The checking account would increase a total of $3,500.00 ($1,000.00 + $2,500.00), however within the checkbook, the NY Fund would own $1,000.00 and the NE Fund would own $2,500.00.

Debit Credit Fund
Checking $1,200.00 $1,200.00 NY Team
Ticket Revenue $1,200.00 $1,200.00 NY Team
Checking $1,000.00 $1,000.00 NE Team
Ticket Revenue $1,000.00 $1,000.00 NE Team

 

The checking account would increase a total of $2,200.00 ($1,200.00 + $1,000.00), however within the checkbook, the NY Fund would own $1,200.00 and the NE Fund would own $1,000.00.

The grand total in the checkbook would increase $5,700.00, the same as the grand revenue from the consolidated statement.

Expenditure Transactions for the Travel Expenses:

Debit Credit Fund
Checking $1,500.00 $1,500.00 NY Team
Bus Travel Expense $1,500.00 $1,500.00 NY Team

 

Because the New England Team did not travel by bus there is no entry for them:

Debit Credit Fund
Checking $3,000.00 $3,000.00 NE Team
Airplane Expense $3,000.00 $3,000.00 NE Team

Because the New York Team did not travel by airplane, there is no entry for them.

If a user ran the Statement of Activities by team (fund), the New York Team would show Bus Travel at $1,500.00 and New England Team at $3,000.00. The consolidated amount is $4,500.00, $1,500.00 from the NY Fund and $3,000.00 from the NE Fund.

Just like in football, where all of the players are assigned a jersey number to identify them and they belong to a particular team, fund accounting uses the chart of accounts and specific funds to identify transactions.

Why a Church Balance Sheet is like a Pizza Pie

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According to the Financial Accounting Standards Board (FASB), non-profit organizations – no matter the size – must produce a Statement of Financial Position. The Statement of Financial Position is a church balance sheet. In the past when viable software solutions were not available, churches would use separate checkbooks to keep the money separate for their ministries. Other creative ways developed over the years, like using spreadsheets or classes to tediously track money and produce reports.

These methods have led to inaccurate reporting, possible misappropriation of funds, slow production of the reports, and reports that were not in compliance. Fund Accounting was developed to help churches manage various funding sources and how money is spent. Fund accounting simplifies the process by having one checkbook, which is separated into multiple funds with individual balances.

To help clarify fund accounting, let’s pretend the checkbook is a pizza pie:

Picture of Pizza Pie representing a Church Balance Sheet

Each fund’s balance, or net amount, is a slice of the pizza pie. To simplify this example, we will not have any liabilities. If we apply numbers, the entire pizza pie is worth 1,000.00.  (Yes, we realize that is an outrageous price for a pizza pie.)

The Youth Fund’s slice is: 400.00
The General Fund’s slice is: 500.00
The Mission Fund’s slice is: 100.00
Total 1000.00

The total still equals 1,000.00, but each fund has their respective slice of the pizza pie representing the net worth. The General Fund owns the majority and the Mission Fund owns the smallest slice. This does not mean either fund is more important than the other, only that one fund owns more than the other. In fact, a common church process that is often out of compliance is taking in all money through the General Fund and then distributing it to other funds. This suggests a hierarchical structure where the General Fund oversees the other funds.

Now let’s look at some transactions and see why fund accounting looks different from the accounting methods used in the For Profit industry. The For Profit method is shown first and the Fund Accounting method second.

The organization receives a Telephone Utility invoice for 150.00:

According to the organization accounting procedures, the double entry accounting would state the following:

Debit Credit
Checking 150.00
Telephone Expense 150.00

This would not work or be in compliance with FASB because we do not know which Fund (remember funds are the slices of pizza pie) should be reduced to pay this bill, therefore adjusting the overall balance of the checkbook and the net amount of the fund. Fund accounting solves all these issues because you choose which fund should pay for this expense. In this example, the General Fund pays for this monthly bill.

The first part of the transaction mirrors the For Profit method; however, the addition of the Fund category is the key.

Debit Credit Fund
Checking 150.00 150.00 General
Telephone Expense 150.00 150.00 General

Now the new balances for each slice of pie should be the following:

The Youth Fund still owns: 400.00
The General Fund is reduced: 350.00 (500.00 – 150.00 = 350.00)
The Mission Fund still owns: 100.00
Total 850.00

Fund accounting empowers the church by giving it the ability to see financial reports for the whole pizza pie as well as for each slice. A fund accounting system can produce a balance sheet just for the General Fund that would show 350.00 in the checkbook, which is the net amount (worth) of the General Fund. Additionally, a balance sheet for the Youth Fund would only show 400.00. A balance sheet for all funds would show the entire 850.00 in the checkbook, but would not specify how much money is allocated to each fund. This type of report is typically called a consolidated balance sheet.

Advanced Setup:

Generic accounts minimize the Chart of Accounts and simplify reporting (i.e. having one Telephone Expense instead of a Pastor Telephone Expense and a Youth Pastor Telephone Expense). The following example will show a Telephone Bill that is split between the General and Youth Funds. Notice the same generic accounts – Checking and Telephone Expense – are used for both funds.

Debit Credit Fund
Checking 100.00 100.00 General
Telephone Expense 100.00 100.00 General
Checking 50.00 50.00 Youth
Telephone Expense 50.00 50.00 Youth

Now the new balances for each slice of pie should be the following:

The Youth Fund is reduced: 350.00 (400.00 – 50.00 = 350.00)
The General Fund is reduced: 400.00 (500.00 – 100.00 = 400.00)
The Mission Fund still owns: 100.00
Total 850.00

The Balance Sheet for the General Fund would show 400.00 in the checkbook as the net amount (worth). The user should be able to create a report for the Youth Fund and only see 350.00 on the balance sheet as the net amount (worth). If the user ran a balance sheet for all funds, it would still show the entire 850.00.

Icon Systems is the only church management software provider that is certified in the FAS 95 and 117 required by the Financial Accounting Standards Board for the fund accounting standards that all non-profit organizations need to follow. Visit www.iconcmo.com for more information or to register for a free trial.

Church Office Software – What Makes it Different?

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Church office software has various shapes and sizes. It is appropriate to distinguish between “church software” and “church office software”.

“Church Software” – is any type of computer software specifically designed for use by a church”. Church software can encompass different types of software such as: bible verse, media production, donation, accounting, mass emailing, sermon, worship, and music software.

Church Office Software is one of the sub types of church software. Typically, the secretaries and financial staff use it in the office. Examples of this type of software are membership, contribution, accounting, newsletter generation, office communication tools, word processing, and spreadsheet software. The software is the heartbeat of the organization. For example, churches can still do their mission if they did not have music or media production software. Conversely, if they do not pay their bills or record donations the church doors will not be open too long.

Church office software is so vital to the mission of the church in keeping it running and the doors open, would it not be beneficial to ensure you choose one that fits your organization and still obeys government guidelines (e.g. IRS, FASB, etc). If the church could choose one thing to be correct within their organization what would it be? Most churches would choose to have the financial books correct. After all, if the church sings the wrong song on a Sunday the IRS won’t be there on a Monday issuing a violation.

Most churches realize the importance of correct financial books; however this area of ministry comes second to all the other activities in the church. When reviewing software, churches focus on the integration of membership or building a community. While these are important, they will not keep the organization out of trouble like having correct financial records. Choosing software that keeps you in check with government agencies first while building a community is the best way to start looking at software packages. It is safe to say that if the software does not have accounting included it is not worth looking at as a complete Church Office Software.

Churches some times fall into the trap of software longevity. Icon Systems can honestly say a company’s longevity in the market is not a good indicator of following the guidelines for financial reporting. If the church is unsure we recommend they do their due diligence and investigate the financial reporting requirements. A good start is to review the blog about “Fund Accounting Methods Compared“. The post discusses scenarios of incorrect guidelines according to FASB that are used in the church software industry.

While all church software is important, if certain software is not used the organization can suffer dire consequences. An organization can lose their tax-exempt status when audited with incorrect financial statements according to the FASB guidelines. Whenever there is uncertainty about proper financial reporting of money within a church, distrust spreads within the organization’s members. An organization using a FASB compliant system like IconCMO cloud base solution can be assured they are within guidelines.

Church Bookkeeping Software vs Church Accounting Software

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Church Bookkeeping Software vs. Church Accounting Software

Is there a difference between bookkeeping and accounting? If so, what is it?

Businessdictionary.com Definitions

Bookkeeping:

The systematic recording of financial aspects of business transactions in appropriate books of account.

Accounting:

The practice and body of knowledge concerned primarily with:

1.    Methods for recording transactions
2.    Keeping financial records
3.    Performing internal audits
4.    Reporting and analyzing financial information to the management
5.    Advising on taxation matters

It is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information. It reveals profit or loss for a given period, and the value and nature of a firm’s assets, liabilities and owners’ equity.

Accounting provides information on:

1.    The resources available to a firm
2.    The means employed to finance those resources
3.    The results achieved through their use

Summary

From the lengthy definition, it is obvious that accounting is somewhat more complex than bookkeeping. Basically, bookkeeping is the tedious task of entering the amounts and dates of revenue and expense transactions (i.e. contributions and purchases). Accounting is the bigger picture: an accounting system uses the bookkeeping information to create reports that can be used by decision-makers and for tax purposes.

Most church software applications accurately handle the bookkeeping part: tracking member donations and spending, even the printing or emailing contribution statements to members and generate giving total reports. Unfortunately, many of these applications fall short when it comes to the most important aspects of having accurate accounting records and providing the reports required by the Financial Accounting Standards Board. For more details, please read our post Fund Accounting Methods Compared.

Conclusion

All businesses, for profit or not, need accurate bookkeeping software to avoid negative consequences (e.g. fines, damaged reputation, having to close the business). These repercussions tend to be magnified for nonprofit organizations; they face losing their tax-exempt status, and the loss of credibility can prove to be devastating since the general public tends to hold churches and nonprofits to higher standards.

Icon Systems understands the value of accounting standards, and we make every effort possible to provide you with the tools necessary to ensure your church is in compliance with FASB guidelines. We even hired an outside CPA firm to certify our software, IconCMO, meets these standards!

Benefits of a Church Payroll Solution (Part II).

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Church Payroll Software Cost and its Benefits

One option for churches is to outsource payroll responsibilities. Payroll services typically charge $1 or more per check, with a minimum fee of $10-25 each pay period. Additional fees are often incurred for quarterly reports and W-2 preparation. These fees can amount to a substantial number over time.

Another option is for the church to purchase payroll software, which usually requires annual upgrades. These upgrades are not only expensive, but the installation process also consumes your valuable time.

The Icon Systems payroll module provides you with an unlimited number of paychecks and pay periods for any number of employees for only $110 a year. Since the system is entirely web-based, upgrades are automatic and cost you nothing extra. Additionally, the web based capability allows payroll checks to be prepared offsite but printed on location for the staff.

Price should not be the only factor considered when choosing a payroll system. The benefits of using the right church payroll software are numerous; however, we summarized the most important ones here.

  • Confidentiality – Church payroll software needs to be password-protected so only authorized people have access to this confidential information. You can have volunteers and staff members use the system to enter contributions and even process accounts payable checks without making sensitive payroll figures available.
  • Accuracy– The importance of accuracy in any church payroll system cannot be overemphasized. Not only do employees rely on the church to calculate paychecks correctly, but reports created for the IRS and other government entities also need to be accurate. Issues concerning pay tend to quickly dissolve trust in any organization, not to mention inaccurate reporting to the government could result in heavy fines.
  • Integration – Using separate church payroll software requires you to summarize the information and record the journal entries in the accounting system. Since the IconCMO Payroll module links directly to the fund accounting records, you are able to allocate staff pay to various funds as well as obtain up-to-date, detailed reports that comply with guidelines set by the Financial Accounting Standards Board (FASB.)
  • Reliability – Icon Systems has been in the business of helping churches for the past 20 years and its certified church accounting software follows the FAS 95 and 117 guidelines. Since you trust Icon Systems to take care of your organization’s accounting needs, it makes sense to turn to us for your payroll needs also.

We hope you have enjoyed reading this two-part series about church payroll software – if you missed the first post, you can read it here.