This post was last updated on October 4th, 2022 at 02:22 pm.

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 Donation funds called “Thanksgiving”, “Missionary Revival Week”, “Lent” and “Summer Outdoor Worship” in the donation 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 “Donation Revenue” in the chart of accounts. They could use the accounting link feature in the donation module and link all of these donation funds to the “Donation 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
Donations Revenue		$15,000	General Fund

Pros:

• Donations are only entered once because of the linking between the donation and the accounting modules.
• Any donations made to the four donation funds listed, will be detailed on the donation 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 donation module.
• Linking different donation 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 Donation funds called “Thanksgiving”, “Missionary Revival Week”, “Lent” and “Summer Outdoor Worship” in the donation 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 donation module and link all of these donation 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:

• Donations are only entered once because of the linking between the donation and the accounting modules.
• Any donations made to the four donation funds listed, will be detailed on the donation 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 donation 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 donation 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.

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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