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Larger Church Utilize Accrual Accounting?

by Rick
(Seattle)

Question regarding a larger church using accrual accounting:

My experience as a church planter and pastor has been in community sized churches, using the cash accounting basis and paying as we go, month to month, year to year, with great peace and success.

I am now looking at the books of a much larger church with a considerable mortgage and much larger operating funds.

The lending institution requires the accrual basis and regular audits. Do you have a resource I can study that specifically guides the use of the accrual method for a church?

Answer

See this question and answer for the difference between cash and accrual accounting.

Personally I have only used the cash accounting method for my church. As you know most small churches use the cash accounting basis so that is what my site and ebooks are based upon.

So I do not personally know of a good resource to study accrual accounting for churches; however, I am posting your question hoping some of this site’s readers will know of one and post their recommendations using the link below.



[Church Accounting Package


www.freechurchaccounting.com


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Larger Church Utilize Accrual Accounting?

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Nov 21, 2009
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starstarstarstarstar 		Accrual Method of Accounting
by: CPA

A resource for studying Accrual Accounting doesn't come to mind, but any accounting principles book would approach accounting from the accrual method.

To oversimplify - accrual is the generally accepted accounting method, because it recognizes income when "earned" (which is somewhat of an issue to deal with in a church setting - do you annualize pledges and declare 1/12 of them earned each month? even if not collected? and other pretty significant issues) and expenses when incurred, rather than simply when paid.

So, if the church pays an annual insurance premium the last month of the fiscal year, 11/12ths of it would be capitalized as an asset - prepaid insurance, and amortized out each of the first 11 months next year.

A cash basis church would simply show the full premium as an expense in the month paid.

Greg

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