Financial Statements Preparation

Prior Steps and Bank Reconciliations

Before you generate your financial statements, there is a process you should go through to ensure the accounting reports you give your pastor, treasurer, or governing council is accurate and complete.

For more details on reconciling your bank and credit cards and generating financial statements, purchase the Church Accounting How To Guide. There is a Month-End Checklist in the book that you can copy and check off the to-dos each month.

Financial Statements Preparation

Review the steps below before preparing financial statements:

  • Check unopened mail for any checks or donations.
  • Check for any unpaid bills
  • Check to see that all contributions have been deposited in the bank and recorded in your financial records.
  • Make sure all paid bills are recorded to the appropriate expense accounts in your financial records and processed through your checking account.
  • Your payroll should be recorded in your financial records.
  • Make sure your payroll liabilities are all paid to the appropriate agencies.
  • Record credit card charges to the correct expense accounts.
  • Look at your bank statement and record interest earned, bank charges, and any automatic withdrawals into the appropriate accounts in your financial records.
  • Record any online donations received less the processing charge.  

Once all transactions have been recorded you will need to reconcile your bank account. See the steps below for completing this very important step before you begin generating your monthly financial statements.

Bank Reconciliation First then Financial Statements

The bank reconciliation is the process of ensuring that your financial records and the bank statement are correct and corresponding. It's a simple process, but can be very tedious.

Review the following bank reconciliation steps:

  • Scan the bank statement and make sure each of the charges have been properly recorded in your general ledger account. If you don't know what a charge is for, call the bank immediately.
  • Look at the deposits that have cleared the bank and compare them to the deposits recorded in your general ledger account. Sometimes the last deposits of the month are not yet recorded in the bank. These are called outstanding deposits. If it appears to be a timing issue it should not be a problem. If your accounting record show the deposit was made early in the month, you need to research why the bank is not showing it.

Reasons why a deposit may not be in your bank statement or be a different amount from your accounting records:

  • Bank error. Banks rarely make mistakes, but they do make them so jump on it quickly!
  • Recorded incorrectly in your accounting records. I have seen this mistake many times! Most of the time it was because a donation was accidentally left out or the loose cash wasn’t added in.
  • Never deposited. It may be still be locked up in the church or even sitting in someone’s car where the person that makes your deposits forgot about it.

There may also be deposits recorded in the bank statement but not in your accounting records.

The most common of these is credit card donations.

With online donations the credit card processor may automatically move the money into your checking account. If that was the case, make sure you go to the website donation site and print out a report by donor and amount for the month. Record these donations and restart your bank reconciliation. 

Compare each of the checks you wrote to the checks that clear the bank.  List any checks not on the bank statement as an outstanding check. If there are checks on the bank statement that are not in the accounting records you will need to investigate these. Where they properly approved and signed by an authorized signer? If so why weren't they recorded?

Once you know the outstanding deposits and checks you are ready to complete the reconciliation and start generating your financial statements.

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Bank Reconciliation Steps

  • Set up a spreadsheet and input the ending balance from the bank statement. There is one in the Spreadsheet Package.
  • Add the outstanding deposits to this balance.
  • Subtract any outstanding checks.

The net effect should be the balance of the cash account in your accounting records.

If it does not equal the accounting records you will need to go back through everything that was recorded in the general ledger and everything that was recorded in the bank.

A common error is a transposition. For example, a check was written for $78 but recorded in your accounting records as $87. If the amount you are off is divisible by nine, it is likely to be a transposition. You will need to compare each check and deposit in the bank statement to find it.

If outstanding checks from the previous month still have not cleared, your reconciliation will not balance. Look at the previous reconciliation and verify that all checks on the outstanding list have clear this month. If not, add the unclear check to the outstanding check list.

Now you have the bank and accounting records reconciled but you are not quite done...

Look at the reconciling items for outdated or unusual items. For example, it is not unusual that checks we wrote toward the last of the month may have not cleared yet, but if you have checks that you know should have been processed by the bank by now, investigate why it hadn’t cleared. Call the person or company. It may have been misplaced or even lost.

Resource:
Church Accounting, The How to Guide for Small & Growing Churches by Lisa London and Vickey Boatright

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