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Fund Accounting for Churches and Non-Profits


Many 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 churches and nonprofits keep restricted and unrestricted funds separate.



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.)

The net asset categories are:

  • Unrestricted
    These funds are donations that are available to use toward any purpose. Unrestricted funds usually go toward the operating expenses of the organization.

  • Temporary Restricted
    These funds may be restricted by purpose or time, but the restrictions are not permanent. An example of a purpose-restricted gift is a gift for a certain project or for the purchase of equipment. An example of a time-restricted gift is a contribution of a trust, annuity, or term endowment where the principal of the gift is restricted for a certain term of time.

  • Permanently Restricted
    These funds are gifts restricted by a donor for a designated purpose or time restriction that will never expire. An example is an endowment gift with the stipulation that the principal is permanently unavailable for spending, but the investment income from the principal may be used in current operations.

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.

restricted funds 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.

nonprofit accounting Treasurers or finance administrators may think that the best way to handle restricted funds is to open a separate checking account for each fund.

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.


Basic Church Accounting provides you with basic accounting concepts, examples of financial statements, and step-by-step instructions for posting church business transactions.

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.


Do you have a question or comment regarding basic fund accounting?

Take a moment to submit your question or comment below. It is quick and easy. There is no registration or login.

Also, please look at the submissions below this form and see if someone has already answered your particular question or maybe you would like to a minute to comment on one of the questions and comments below.

We are all facing a lot of the same issues and need each other...so help and be helped here:

Accounting Questions and Comments

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