Cash Accounting Basis for Our Small Church?

Using Cash Basis Accounting for a Church

Using Cash Basis Accounting for a Church

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 cash basis when setting up the church financial. Or is the fund or GAAP basis the preferred method of accounting?

Regards,
Alicia

P.S. Thanks so much for setting up the site. I have found a lot of useful information here regarding fund accounting.

Vickey's Reply

Most small churches use the cash basis in their fund accounting system...for their internal reporting.

Be aware that some third parties such as lending institutions require churches to use accrual basis accounting and adhere to GAAP (Generally Accepted Accounting Principles) guidelines.

Cash and accrual methods differ only in when income and expenses are recorded.

Under the cash method, income (offerings, fundraisers, etc.) is not counted until cash (or a check) is actually received, and expenses are not counted until they are actually paid.

Under the accrual method, transactions are recorded when the order is made, the item is delivered, or the services occur, regardless of when the money for them (receivables) is actually received or paid.

Fund accounting is something totally different It is a system of accounting based on separating information into groups which reflect donor-imposed restrictions.

So you would need to determine if you are going to use the cash or accrual method in your fund accounting system.

Hope this makes sense to you. Church accounting is so different and it can be kind of confusing until you learn the basics of it :-)

Comments for Cash Accounting Basis for Our Small Church?

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Dec 07, 2015
Larger Church Utilize Accrual Accounting?
by: Rick

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?

Dec 07, 2015
Accrual Method of Accounting
by: Greg, 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.

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