IconCMO Blog

  • Free Trial
  • Finance
  • People
  • Tech
  • Updates
  • About
    • Comment Policy

Important: 2013 Payroll Tax Updates for Churches

January 3, 2013 By Robert Leave a Comment

You may have heard or read about the expiring tax cuts coupled with across-the-board government spending cuts that were due to be effective December 31, 2012. Many dubbed this the “Fiscal Cliff”.

fiscal_cliff_church_payroll
Photo Credit: somadjinn

Congress let the December 31, 2012 deadline pass without passing legislation that would have averted this economic disaster. However, in early 2013 legislation was passed to extend a lot of these tax cuts. Unfortunately, the provision to extend the 4.2% FICA tax withheld from employee paychecks was not included in this provision.

What does this mean for churches?

Effective January 1, 2013, there are four important payroll tax updates that churches should be aware of. Two of the updates affect every church who has payroll. The other two are more likely to apply to large churches only. The payroll updates are as follows:

  1. Effective January 1, 2013, churches should withhold 6.2% FICA tax from employee paychecks (up from 4.2% in 2010 through 2012). Total Social Security withholding from employee paychecks will be 6.2% for FICA and 1.45% for Medicare, for a combined total of 7.65%. As in past years, the employer portion will remain at 6.2% for FICA and 1.45% for Medicare. When making payroll tax deposits, the combined withholding will be 15.3% (7.65% employee plus 7.65% employer).
  2. As of the writing of this article, the Internal Revenue Service (IRS) has stated that employers should still use the 2012 income tax withholding tables to calculate federal income tax withheld from 2013 paychecks. This will be effective until further instructions are received from the IRS. 01/04/2013 Update: On January 3, 2013 the Internal Revenue Service (IRS) issued new 2013 income tax withholding guidance to calculate federal income tax withheld from 2013 paychecks. The guidance issued on January 3rd only includes the percentage-method rates – not the full tables. The IRS states that the new 2013 tables should be available sometime in early 2013. The IRS also states that employers should begin to use the new 2013 rates and tables no later than February 15, 2013. The new tables will be found in the 2013 IRS Publication 15  ” Circular E – Employer’s Tax Guide”. For more information refer to http://www.irs.gov/uac/Newsroom/IRS-Provides-Updated-Withholding-Guidance-for-2013 for the 2013 percent-method guidance and to the IRS website at http://www.irs.gov/.
  3. The 2013 Social Security wage base has increased to $113,700 from $110,100 in 2012. This means that employees will be taxed at the 6.2% FICA tax rate until they reach gross wages of $113,700. If wages exceed this amount, no additional FICA tax is withheld. As a side note, wages subject to Medicare tax do not have this limit, so for  2013, Medicare tax would still be withheld at 1.45% for wages in excess of $113,700.
  4. Effective January 1, 2013, taxable Medicare wages in excess of $200,000 are subject to an extra .9% Medicare tax. Total Medicare tax withheld for wages in excess of $200,000 will be 2.35% for the employee portion (1.45% plus the additional .9% for wages in excess of $200,000).This tax will only be withheld from employee wages. Employers do not have to “match” this amount. (Employer portion will be 1.45% even if wages are in excess of $200,000.)

As always, be sure to consult your CPA or accountant for payroll tax and other tax matters.

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.

Filed Under: Finance Tagged With: church payroll, cpa, irs, non-profit

Do you know which accounting method is right for you? Bonus: FREE 15 minute crash course on accounting methods

October 4, 2012 By Robert 2 Comments

When I took accounting in college, one of my fellow students asked the instructor why we had to complete our homework assignments by hand. After all, it is the 21st century; everyone just uses accounting software now!

The wise accounting instructor rebutted by explaining that we need to understand how to do accounting with a pencil and paper before we understand how to do it using software programs.

But, couldn’t we just learn from using software?

Probably, but now that I work at a church accounting software company I actually agree with my instructor completely.

Accounting is accounting. If you understand the basic principles, you will be able to use that knowledge with any accounting software. If you don’t know how to record a journal entry or balance a checkbook on paper, it’s much more difficult figuring out how to apply those same concepts within an accounting program — no matter how user-friendly it is.

Back to school: accounting methods videosPhoto Credit: NYOBE

A few accounting questions I often get asked by customers

What do AR and AP mean?

They are abbreviations for Accounts Receivable and Accounts Payable.

Should I use the Accounts Receivable and Accounts Payable modules in IconCMO?

That depends on which accounting method you are using; cash method, accrual method, or a combination of both.

An accounting method is a set of rules used to determine when and how income and expenses are reported. (irs.gov)

What’s the difference between cash accounting and the accrual basis of accounting?

The IRS website has this to say about cash accounting:

Most individuals and many sole proprietors with no inventory use the cash method because they find it easier to keep cash method records. However, if an inventory is necessary to account for your income, you must generally use an accrual method of accounting for sales and purchases. (irs.gov)

And this about accrual basis:

Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. The purpose of an accrual method of accounting is to match income and expenses in the correct year. (irs.gov)

Please consult your CPA if you are unsure which method you should be using.

FREE 15 minute crash course on accounting methods

A few weeks ago, I stumbled across videos on khanacademy.org. They do a great job explaining the concepts outlined above in a way that is easy to understand for someone without much of an accounting background.

I listed the titles below so you have an idea of what to expect. But I only linked to the first one since the videos are set up in a queue (i.e. once you finish the first the next one will start to load.)

  • Cash Accounting
  • Accrual Basis of Accounting
  • Comparing Accrual and Cash Accounting

Got a few extra minutes?

Keep watching! The next three videos in the queue cover financial statements and accounts payable.

Looking for even more information?

Download our FREE e-book: Fund Accounting for Church Leadership.

Filed Under: Finance Tagged With: balance sheet, cpa, fund accounting, irs, videos

Free E-Book: Fund Accounting for Church Leadership

April 26, 2012 By Robert Leave a Comment

If you’re ready to get serious about your church’s finances, then we have a treat for you!

Accounting is an often overlooked section of church management. Many times little or no attention is paid to church financials except during a time of crisis or when there is an upcoming audit. We decided to create an e-book titled Fund Accounting for Church Leadership to help staff and volunteers understand the fundamental importance of accounting within the church.

Fund Accounting for Church Leadership

Click here to download Fund Accounting for Church Leadership for FREE now!

Filed Under: Finance Tagged With: cpa, fasb, fund accounting, non-profit

Spring Cleaning: How long should you keep important documents?

April 18, 2012 By Robert Leave a Comment

Spring is in the air!Spring Cleaning: How long should you keep important documents?

If you are like me, you may feel motivated to do a little spring cleaning around the house. It feels good to get rid of papers, magazines, and other items that have been accumulating all winter.

The sweater Aunt Marge gave you for Christmas three years ago that you never wear? Donate it. The crumbling macaroni art your adult son made for you when he was in preschool? You can probably live without it. How about the folder of old bank statements in your file cabinet? That one might be a little trickier.

Here is a list of various business and personal records and suggested guidelines* for how long you should keep them. Happy Spring Cleaning!

Document

Keep it

1099’s received 7 years
Accounts payable ledgers & schedules 7 years
Accounts receivable ledgers & schedules 7 years
Annual information returns Permanently
Audit report of accountants Permanently
Bank reconciliations 7 years
Bank statements 7 years
Capital stock and bond records Permanently
Canceled checks – except below 7 years
Canceled checks for important payments (e.g. taxes, purchase of property) Permanently
Contracts, mortgages, notes – expired 7 years
Contracts, mortgages, notes – in effect Permanently
Contribution records Permanently
Correspondence (general) 2 years
Correspondence (legal & important matters) Permanently
Deeds, mortgages, bills of sale Permanently
Depreciation schedules Permanently
Duplicate deposit slips 2 years
Employee files (terminated) 7 years
Employee applications 3 years
Expense analysis 7 years
Financial Statements – year end Permanently
Garnishments 7 years
Gifts- record of terms, conditions, & restrictions Permanently
Insurance policies – expired 3 years
Insurance records- current Permanently
Internal audit reports 3 years
Inventories 7 years
Invoices to customers or from vendors 7 years
Minute books of directors, stockholders, bylaws, & charter Permanently
Notes receivable ledgers & schedules 7 years
OSHA records 6 years
Payroll records 7 years
Payroll tax reports 7 years
Petty cash vouchers 3 years
Property appraisals Permanently
Property records including costs, depreciation, blueprints, & plans Permanently
Purchase orders 1 year
Retirement and Pension records Permanently
Sales commission reports 3 years
Service contracts/extended warranty 10 years after termination
Subsidiary ledgers 7 years
Tax exemption documents Permanently
Tax returns Permanently
Time cards 2 years
Trademark registration & copyrights Permanently
W-2’s 7 years
Withholding tax statements 7 years
Year-end brokerage statements 7 years

 

*It should be noted that record retention schedules may vary from state to state. Please contact your attorney or CPA to get guidelines that are specific to you.

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.

Photo Credit: internetsense

Filed Under: Finance Tagged With: balance sheet, contribution statements, cpa, irs, non-profit

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

April 2, 2012 By Robert Leave a Comment

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.

 

Filed Under: Finance Tagged With: church management software, cpa, fasb, non-profit

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

March 26, 2012 By Robert Leave a Comment

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

Filed Under: Finance Tagged With: church management software, cpa, donations, fasb, fund accounting

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

March 19, 2012 By Robert Leave a Comment

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

Filed Under: Finance Tagged With: cpa, fasb, fund accounting

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

March 12, 2012 By Robert Leave a Comment

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

Filed Under: Finance Tagged With: church management software, cpa, donations, fasb, fund accounting, non-profit

7 Ways IconCMO Can Save You Money

March 2, 2012 By Robert 2 Comments

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.

Filed Under: Finance Tagged With: church technology, cloud computing, communication, contribution statements, email

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

February 3, 2012 By Jay Leave a Comment

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.

Filed Under: Finance Tagged With: cpa, fasb, fund accounting

  • « Previous Page
  • 1
  • …
  • 3
  • 4
  • 5
  • 6
  • 7
  • Next Page »

Looking for something?

Subscribe to email updates!

Sign Up Now
We respect your privacy and you can unsubscribe at any time.

Popular Posts

  • Set Up IconCMO Mobile Apps
    Set Up IconCMO Mobile Apps
  • Does Debit Mean Minus and Credit Mean Plus?
    Does Debit Mean Minus and Credit Mean Plus?
  • What are pass-through accounts?
    What are pass-through accounts?

Follow us on Twitter

My Tweets

Copyright © 2019 Icon Systems, Inc. · The Innovator in Church Software and Non-Profit Accounting Solutions!