Fund Accounting for Churches and Non-Profits

What is fund accounting?

Most churches and nonprofits use fund accounting. It is an accounting method that groups assets and liabilities according to the specific purpose for which they are to be used. It helps to keep restricted (special) and unrestricted (general) funds separate.

What is its main purpose?

The main purpose is stewardship of financial resources received and expended in compliance with legal or other requirements.

What is stewardship?

Stewardship is a responsibility to take care of another person's property or financial affairs.

Why should churches and nonprofits utilize this method of accounting?

Because with fund accounting, accountability is measured instead of profitability. Financial reports are directed toward contributors, church members, or the church/nonprofit's governing body, who are more concerned with having adequate fund balances to carry on services provided rather than seeking a profit on investments as investors do.

In fund accounting, funds are set up to provide reporting of expenditures for designated purposes.

How do you set it up?

Profit oriented businesses only have one set of self-balancing 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

Then you may have several more general 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.

An example of this would be if your church sponsors a vacation Bible school program every year and pays the preparation costs beforehand.

Voluntary donations from parents during the vbs recapture the up-front cost and maybe a little bit more. Without fund accounting, the church would simply see the expense of the vbs program out of the general fund, and the vbs-specific donations would be accumulated with other donations. The church would not be able to document the net cost of the vbs program.

This approach multiplies paperwork and makes determination of 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 nonprofit accounting up on paper, in spreadsheets, or through a church or fund 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.

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Additional Resources

Recommended Reading and Products:

Membership Plus Version 11 - Deluxe Edition By ACS Technologies Designed to simplify the administrative tasks involved in managing your church or organization, Membership PLUS Deluxe version 11 includes all of the features and functionality of the Standard version and much more! It's an easy to use, effective and reliable church management tool for Administrators, Program Leaders and Clergy. View the Membership Plus Standard & Deluxe Comparison Chart Standard features include: Easily track members, visitors, organizations, contributions, group attendance and much more! Maintain multiple addresses, phone numbers and email addresses. Includes built-in reports as well as Report Builder for your custom reports. Quick Letter, Mailing labels, Policies and Procedures, Surveys, and more Deluxe features also include: Integrating contributions with Fund Accounting to eliminate duplicate entry of information Allowing users to post contributions within the privacy of their own home using the Contributions@Home module Small Groups Event Registration Calendar Progress Tracker Quick Viewer for users who don’t need full access allowing you to protect sensitive member information! Multi users licensing is also available. Requirments include: 512MB RAM Windows 00/XP/Vista

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Not-For-Profit Accounting Made Easy 2nd Edition By Warren Ruppel / John Wiley & Sons Not-for-Profit Accounting Made Easy equips you with the tools you need to run the financial and accounting operations within your nonprofit organization. Even if you do not have a professional understanding of accounting principles and financial reporting, this handy guide makes it all clear with complex accounting rules explained in terms non-accountants can easily understand in order to help you better fulfill your managerial and fiduciary duties. Always practical and never over-technical, this helpful guide conforms to FASB and AICPA standards.

Basic Accounting for Churches By Jack A. Henry / B & H Publishing Group Introducing a book that makes church money management make sense! Written especially for the new pastor, this manual will take away your "fear of figures" and reveal bookkeeping for what it really is---basic adding and subtracting. You can do it! Henry offers simple directions, practice exercises, sample forms, and more to get you started. 176 pages, softcover from B&H.

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