Fund Accounting is Different from For-Profit Accounting

In the mid 1990’s, the Financial Accounting Standards Board (FASB) issued the Statement of Financial Accounting Standards (SFAS) Numbers 116 and 117, which describes the way nonprofits should account for contributions, and present their financial statements.

The emphasis of the SFAS financial statement reporting is now on “net assets” classification, rather than tracking each fund. (Net assets means more or less the same as owner’s equity or net worth in a for-profit business.)

Net assets can now be combined into these three categories and you are no longer required to track each fund individually.

However, SFAS 117 did not do away with fund accounting as it concerns only financial statements, not reports used internally.

Many small churches and nonprofits continue to use fund accounting. These organizations (including my own church) find that tracking their financial activities internally is easier if they stay with the fund accounting method.

With fund accounting you will produce reports that detail expenditures and revenues for multiple funds.

Profit oriented businesses only have one set of accounts or general ledger. However, churches and nonprofits can have more than one general ledger depending on their need.

For example...you may have one general ledger account titled "General Fund" which all unrestricted funds pass through.

Then you may have several more ledger accounts titled "Missions", "Building Fund", "Vacation Bible School", etc. which restricted funds pass through. These are funds that are set aside for a specific purpose.

This approach multiplies paperwork and makes preparing a balance sheet much more difficult.

All funds can be placed in one bank account as long as the accounting system clearly documents net assets and liabilities in each fund apart from operational cash flow.

Also...you must be able to produce reports that summarize the financial activities of the church or nonprofit with all of your funds.

You can set your church or non profit accounting up on paper, in spreadsheets, or through a church accounting software. No matter how you choose to set it up...it is very important that your financial administrators understand the underlying concepts of fund accounting and accurate financial statement preparation.

A bonus fund accounting report is included free with the purchase of this book. This report includes examples of funds and a couple of different methods for setting up QuickBooks for fund accounting.

Personal Note: I have closed the question and answer portion of my site. With my husband’s illness, my “regular” 40hr a week job, building and maintaining three web sites, and my volunteer work at my church, I am overwhelmed. I had to let something go. My God comes first, my precious husband and children come second, and with my husband being on my insurance at work...it comes third. So that leaves my web sites and the question and answers take a very big portion of my time. So it had to be the first to go.

However...you can look at the submissions below and see if someone has already answered your particular question or maybe you would like to take a minute to comment on one of the questions and comments below. Your opinions and comments are very valuable to me...so thank you in advance for contributing your comments.

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Also please read the disclaimer at located at the bottom of these comments and realize the comments below are for general information purposes only and do not constitute legal or other professional advice on any subject matter. Please contact a tax professional to discuss your particular situation before relying on any information given on this site.

Archive of Fund Accounting Questions (& Answers)

(Click on the read or post comment on the bottom of the question to see the answers and/or add your own comments or answers!)

Closing Books
Giving has been down this year for our church and expenses are up, it is looking more and more like we will be over budget at the end of the year.

Since ...

Designated monies reimbursing budget?
Our church spent 2000.00 in January 2010 from budgeted funds. In August 2010, a donor contributes 2,000.00 designated for worship. Does this mean the worship ...

Church Financial Statements
Is the church allowed to show, publicly, what each individual tithed at the end of the year?

Vickey's reply

No. Contributions MUST be kept strictly ...

Church Groups and accounting practices
I just need some straightforward advice. I am a member of a small church. For decades each group (ladies auxiliary,mens club, youth group,stitchers, etc)...

mortgage payment transaction posting in fund accounting
What is the proper way to post a church mortgage payment to the ledger? I know that the standard procedure in for-profit accounting is NOT expense the ...

Capital Expenses
Is a new roof for a parsonage considered a capital expense for a church?

[Know the answer? Face the same situation? Please post your answer or comment ...

Risk of Church Losing Tax Exempt Status?
Many years ago, I kept the accounting records (books) for about 25 small businesses, each one with a very different product or service.

A clear reality ...

Legal Question about fund accounting
Is it illegal for a church to use money from another fund temporarily.For example,our church's general fund is out of money,but we still have money in ...

Journal entry for Building
I am doing a church's accounting. It is non-profit and fund accounting. The Building is completely paid off but is not on the balance sheet for what ...

CD Interest
80 years ago someone gave our church a monetary gift that was to be invested and the interest used to help pay the pastor's salary. Over the years the ...

Journal Entry for Fixed Assets
WHAT IS THE JOURNAL ENTRY FOR FIXED ASSETS PURCHASE USING DONATED FUND?

Answer

Debit the appropriate fixed asset account

and

Credit your ...

Management overriding controls
I work part time as the bookkeeper for a church reporting to the senior pastor. I am a retired accountant having spent 38 years in aerospace accounting,...

Missions Trip
A few members of my church are participating in an upcoming missions trip. There are fees associated with this trip that each member is responsible for....

Church Budget
Do you have to list the pay amount for each employee on the church budget report that's handed out to members during quarterly Financial meeting? Can that ...

What Percentage of Budget is Average for Salaries
What is the average % of salaries in a church budget?

vickey's reply

It kind of depends...

Dan Busby, CPA, states that employees of churches ...

Budget tracking vs financial accounting
I am new on our church Budget/Finance Committee. The Financial Secretary produces: 1)A monthly Year-to-Date Budget Comparison and a monthly financial ...

Fixed Asset Depreciation
I have bought some furniture and mini bus for our small church. As far as accounting is concerned these are classified as fixed assets.

1. How do I ...

Deleting funds in Fund Accounting
I have several funds that I don't need anymore and I need to delete. I have a custom coded fund accounting system running on a AS/400.

When I delete ...

Endowment Fund
We are just converting to fund accounting and is in the process of determining the starting fund balances for 2010.

1. Is it correct to use the 2010 ...

Dissolution of a Building Fund
We are a small church and the elder board has decided to dissolve the building fund. Are there any legal ramifications? What procedures need to be followed ...

Larger Church Utilize Accrual Accounting?
Question regarding a larger church using accrual accounting:

My experience as a church planter and pastor has been in community sized churches, using ...

Depreciation - Balance sheet only or can I use Profit and Loss?
Question regarding depreciation.

I need some advice regarding Fund Accounting.

I use a software package that allows me to depreciate my fixed assets,...

Why Should You Keep Accounting Records?
How and why should churches keep accounting records?

Answer :

Why?
Before making a major cash purchase for your church, you need to know the ...

Presentation of Building Fund Bank Account
Building Fund is a specific fund to be used for acquisition or construction building that will mainly used for education purpose. While accumulating this ...

Purpose of tithes and offerings
Is it true that the IRS does not allow churches to make monetary gifts to an individual from the tithes and offerings funds?
We had a guest minister who ...

PASS THRU FUNDS
We currently collect money as a church on a monthly basis for a benevolent nonprofit organization and mail the checks made out to that organization directly ...

Building Interest Expense
Should the interest expense on a new building be paid and accounted for in the general budget or should money be borrowed from the credit line to pay the ...

Accounting for Gifts
Our church was given two cemetery plots worth, at the time, $2,500. Do we carry these on the books at $2,500 or do we find out what the value is today ...

Building Fund
Can utilities be paid out of the building fund account?

Answer

It would depend on the situation. There could be special circumstances where utilities ...

Separation of duties
Should the same person sign checks and count the money?

Answer

Not if you can help it. Sometimes you have no choice while your church is growing....

Our Pastor is the Pastor of 2 seperate churchs - can he take a housing allowance for both? Not rated yet
Our Pastor is the pastor of 2 seperate churchs in our organization. Can he take a housing allowance in both churchs? Also, the secretary has withheld ss ...

Accounting for Donated Life Insurance Policy to Endowment Fund Not rated yet
How should a church account for a donated universal life insurance policy (owner is now the church's endowment fund)? The premiums are being paid monthly ...

Setting up fixed assets Not rated yet
What are the journal entries needed to set up fixed assets that have been paid for through the temp restr building fund?

The original entry was to ...

Contributions to restricted funds Not rated yet
I am confused about recording contributions to, for example, the building fund. How does the contribution get recorded as income on the Statement of Activities?...

Transfer of Fund Not rated yet
Before I became the treasurer of the church I am a member of, a transfer of funds from one account was made to the general/main account by check. How ...

Transfer of expense from General Fund, reimbursed by Fundraising Fund Not rated yet
Normally, projects that are covered by our Fundraising Fund are paid directly out of that fund. We had an expense incurred in the General Fund, that was ...

how does fund accounting handles depreciation Not rated yet
How does fund accounting handles depreciation?

[Know the answer? Face the same situation? Please post your answer or comment by using the "comment" link ...

When to use double accounting system Not rated yet
Is there a budget threshold that triggers a requirement to use double entry system? Our expense budget is about $370,000 annually. Thanks.

[Know the ...

Books for Minister Not rated yet
Our preacher receives a book allowance each month. Do the books belong to the church or to the minister? If they belong to the minister, does it need ...

fund accounting Not rated yet
I need a sample financial statement showing how restricted accounts such as building fund, benevolent funds etc are handled on the balance sheet and income ...

Single-entry accounting and General Ledger for a small church Not rated yet
I am an auditor for our small church, and I uncovered questionable spending practices by the now former Treasurer who is not forthcoming with records which ...

Fund accounting through Quick Books? Not rated yet
I recently took over a part time treasurer position at our church. The previous treasurer has used Quick Books for most of the accounting but keeps a ...

Forms or Documentation for International Visiting Pastors Not rated yet
Are international visiting pastors supposed to fill out a form for money given when they preach?

Answer

There is not an IRS form that I know of ...

Coping Donor's Checks
Legality of copying donor checks

Posting Interest on CDs Not rated yet
I inherited the policies of this church and was not here when the system was set-up
The church uses fund accounting and everything goes pretty smoothly....

Cash or Accrual? Not rated yet
Do most churches 400 members or less use accrual or cash base accounting?

Answer

Most small churches use the cash basis method of accounting. See ...

Fixed Assets and depreciation Not rated yet
Are fixed assets and depreciation recorded in Fund Accounting similar to corporate accounting? As it relates to capitalization policies, asset lives and ...

Reporting Temporary Restricted Funds Not rated yet
Is it necessary to report Temporary Restricted Funds in the Income Statement?

Answer

The FASB (Financial Accounting Standards Board) 117 states ...

Church Budget Allocations for Outreaches Not rated yet
What is the ideal percentage should be allocated for church outreaches, missions and or ministries?

Answer

That would be determined by your governing ...

Building Maintenance Reserve Not rated yet
We want to set aside a portion of rental income each month into a reserve account for building repair. What is the proper way to do this?

Answer

I ...

Recognizing Income from an Unrestricted Gift Not rated yet
My church received an unrestricted special gift. Is it okay for 20% of the gift to be recognized as unrestricted income in the general fund and the remainder ...

writing checks vs.online bill pay Not rated yet
Is it recommended that I pay our church's bills by writing a check ONLY, or is it ok to pay bills online directly to the creditor?

Answer

It ...

General Fund and Subaccount Procedures Not rated yet
Is it legal and/or ethical to deposit money taken in as a "general tithe" to be placed in a subaccount of the church designated for example: Kitchen Fund,...

Income Earned in 2009 but paid in 2010 Not rated yet
My board approved a raise for me that was retroactive to October ’09. The raise amount per month was $---, totaling $---- for Oct-Dec, which when we ...

Too Many Funds Not rated yet
Question regarding fund accounting:

When I first set up the chart of accounts in the software my church uses, Power Church Plus, I created fund numbers ...

Fund Accounting Initial Set-up Not rated yet
Question regarding setting up for fund accounting:

I just bought your Basic Church Accounting and Fund Accounting eBooks and they were very helpful ...

Property Taxes Debit? Credit? Not rated yet
Question regarding correct posting of property taxes:

If our church makes deposits into a savings account throughout the year weekly to help save for ...

Setting up a Budget for a Small Church Not rated yet
Need help on how to set up a budget for small church with 5 departments.

Answer

Decide what type of budget you want to use.

Decide what ...

The best audit programme for a Non Profit organization Not rated yet
How can I get the best audit programme for the audit of a non profit firm from the point view of a young and inexperience CPA?

Answer
I do not personally ...

Cash Accounting Basis for Our Small Church? Not rated yet
I have a fundamental question with regard to the use of a cash accounting basis for our small church in Washington, DC.

Is it appropriate to use a ...

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Archive of Fund Accounting Questions (& Answers)

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