Best Managing Church Finances: Church Accounting Guidelines 2023

In a proper church accounting system, the CoA works in conjunction with funds, to create a robust church fund accounting system that answers the question of accountability. Funds working with the CoA, provide a multiple tier reporting structure that gives a deep dive view into the organization’s spending. Churches are nonprofits and must use fund accounting to track revenue and expenses. Fund accounting helps churches separate revenue and expenses based on how they came in and how they’re used. In short, the accounting method churches should use is fund accounting. Before the creation of fund accounting software, churches would use multiple checkbooks to keep their money separated — ie designated vs undesignated.

Fund accounting stems from the key difference between churches and businesses. It focuses on accountability and stewardship instead than profitability. For-profit entities have a general ledger (or a single self-balancing account), and churches have multiple general ledgers. These general ledgers go by “funds.” Funds let organizations separate resources into different accounts to identify the uses of those resources as well as where they came from. Since churches are tax-exempt, they have to keep detailed records while bookkeeping. Churches collect funds from several sources, not just offering and tithing.

Church Finance: The Church Leader’s Guide to Financial Operations

Long story short — credit and debit cards were aptly named from the bank’s perspective not their account holder’s. If you’re still confused, we go into great detail about this verbiage switcheroo in this blog post. Because your church doesn’t sell goods or services, you need more than a single general ledger. You need a series of ledgers to describe the different uses for the money at the church. When you became a leader at your church, you did so because you felt called by God to help spread the Word and to make a difference in your community.

The Haiti Mission fund can report exactly how much money they currently have, how it was earned, and how it was spent. Accounting software handles tithing, other accounting for churches forms of contributions, and fundraising events. The software should also handle administrative work, like incoming and outgoing payments, and budgets.

Should you outsource accounting or hire an in-house accountant?

If your church decides to file annually with the IRS to limit the chances of auditing and build trust with their members, you must file Form 990. Churches that use freelancers for accounting, repair, cleaning, entertainment, or other purposes must file Form 1099. Any time your church pays a freelancer $600 or more, you must file this with the IRS and send a copy to the freelancer. If you are a larger church with significant staff and budgets, hiring an accountant for a staff position may be a better option. An important rule for church accounting is to delegate accounting responsibilities.

A refund is money you had already spent, but are now receiving back, due to an overpayment or return. It’s important the organization does not overstate a revenue account because of a refund. There’s an old adage about data entry that states “garbage in, garbage out”.