We make a living by what we get, but we make a life by
what we give. – Winston Churchill
™
Accounting for Contributions
It is Super Bowl Sunday, and the pastor announces during his sermon that a special “Soup Bowl”
offering is going to be taken up for the downtown rescue mission. Of course he does this without
talking to you, the treasurer of the church first. Or the singles group decides to take up a special
offering to buy gift cards for single moms to buy Christmas presents for their children. How are you
supposed to show these types of offerings in the church's financial records?
These situations are the primary differences between non-profit and commercial accounting. Keeping
track of special offerings and donor restricted contributions is one of the hardest tasks that church
treasurers must account for. This document will explain the proper way to account for special
offerings and gifts made with donor restrictions.
This document is written for the church treasurer or bookkeeper. It is not designed to be an
introduction to accounting and assumes a basic familiarity with accounting principles. You should be
familiar with how debits and credits work and know the differences between Asset, Equity, Income,
and Expense accounts.
Determining the Type of Contribution
The first thing we must do when we have a new contribution area is determine if the income belongs to
the church. In other words, should an income account be increased when the money is received, or
should the contribution be recorded as a liability and then decreased when it is paid? In our first
example, the church would classify the “soup bowl” offering as a pass-thru contribution and recognize
a liability until the money has been paid to the rescue mission. But, the singles gift card offering
would be recognized as income by the church since the program of buying and distributing the gift
cards is going to be administered by the church.
The primary difference between these two contributions is who is responsible for seeing that the
money is spent for the intended purpose. In the first example, the church is collecting money that is
going to be turned over to the rescue mission. They are the ones who are responsible to see that the
money is used in accordance with the donation. All the church is doing is passing the donation thru to
another non-profit organization.
If we determine the contribution does not meet the criteria of a pass-thru contribution, the second
step is to determine if the donor has restricted the contribution for a particular purpose. This is the
case of the gift cards in our example above; the donors gave the money for a specific purpose. The
church is bound ethically, and in some cases even legally, to use the money accordingly.
In the absence of any such restrictions, the contribution is considered to be an unrestricted
contribution. Unrestricted contributions can be used by the church for the ongoing day to day
operation of the church, or for any other use as determined by the church’s governing body.
Types of Contributions
All contributions can be classified as one of the following types of contributions:
Unrestricted Contributions – Contributions received to further the work of the church without any
restriction on how, when or where the money can be spent. Examples of this type of contribution
would be weekly tithes and offerings.
Donor Restricted Contributions – These are contributions received where the donor has specified
how the money is to be used. This can be an explicit restriction by the donor, such as a letter
accompanying the donation, or it can also be an implicit donor restriction, such as responding to an
appeal for a specific purpose. Donor restricted contributions are further divided into two subcategories, Temporary and Permanent Restrictions based on the expected use of the donation.
Temporary Restriction – Contribution received for a specific purpose where the amount given
can be eventually used. Examples of this type of contribution would be donations to a building
fund, benevolence fund, or for any other specific purpose.
Permanent Restriction – Donation where the original contribution can never be used. The
most common example of a permanently restricted contribution would be donations to an
endowment fund.
Pass-Thru Contributions – As in our rescue mission example in the introduction, a contribution
where the church is merely receiving the donation and then passing the donation along to another
non-profit organization that is carrying out the work.
Accounting for Contributions
Each of these types of contributions is shown on the church’s financial records differently. People use
the information presented in the financial records to make decisions for and about the church. One of
the areas that needs to be clearly shown is the amount and nature of money that is restricted and how
it can be used.
Now we will look at each type of contribution more closely and show the proper way to account for it.
To illustrate how each type of contribution is accounted for, we are going to look at the accounting
records of First Church. On January 1, First Church has the following balance sheet:
First Church
Balance Sheet - January 1
Assets
Checking Accounts
Land & Buildings
Total Assets
Liabilities
Mortgage
$
1,000
50,000
51,000
$
20,000
Equity
Unrestricted Equity
Total Liabilities & Equity
31,000
$
51,000
Types of Contributions 2
Unrestricted Contributions
An unrestricted contribution is money received by the church that has not been restricted by the
donor for a specific use. This will probably be the most common type of contribution your church will
receive. Examples of unrestricted contributions would be the weekly tithes and offerings. Unrestricted
contributions are the easiest type of contribution to account for. When the money is received, it
increases an income account and also increases the bank account.
On January 5th, the first Sunday of the year, First Church receives tithes and offerings of $2,400. The
following journal entry records the contributions.
Account
01-1110-000
01-4030-000
Account Name
Checking Account
Tithes & Offerings Income
Description
January 5th Contributions
January 5th Contributions
Debit
Credit
2,400
2,400
The above entry increases First Church’s Checking Account and increases the Tithes & Offerings
Income account by $2,400. After posting the above entry, First Church’s Balance Sheet and Income &
Expense Statement look like the following:
First Church
Income & Expense Statement
January 1 - 5
First Church
Balance Sheet - January 5
Assets
Checking Accounts
Land & Buildings
Total Assets
Liabilities
Mortgage
$
$
Equity
Unrestricted Equity
Total Liabilities & Equity
3,400
50,000
53,400
Income
Contribution Income
Tithes & Offerings
Total Income
20,000
Expenses
Fixed Expenses
Total Expenses
33,400
$
Net Income
$
2,400
2,400
$
2,400
53,400
There really is no special treatment for unrestricted contributions. The $2,400 received can be used by
the church to meet its ongoing needs and does not have to be classified as a restricted amount on
First Church’s Balance Sheet. Notice that the Unrestricted Equity account was increased by the
$2,400 of contributions received.
Donor Restricted Contributions - Temporary
On January 12th, the head of the property committee announces that $2,000 is needed to buy new
cribs for the nursery, and that a special offering will be received for the next few weeks to purchase the
cribs. In this weeks offering, First Church receives $2,800 in Tithes & Offerings and $450 towards
purchasing new cribs for the nursery. The total deposit for the Sunday giving is $3,250. The gifts for
the new cribs would be classified as temporary restrictions.
To keep track of the amounts received, some new accounts need to be added to the chart of accounts.
For each restriction we will need three separate accounts, an equity account, an income account, and
a release account. The equity account will keep track of the current balance of each restricted area.
The income account keeps track of the total amount that has been received for each restricted area.
The income account is setup to close to the equity account for this restriction. When the money is
spent, we will use the release account to tell the system that restricted money has been used. This
release account closes to the new equity account as well. The release account is a contra-income
account, (Contra-income means the account’s normal balance is negative) and will be shown in the
income section of the Income & Expense statement. This is the account we will look to when someone
wants to know how much of the money that was given has been used.
Accounting for Contributions 3
In addition to the three accounts above, we also need to add a released from restrictions account. This
account is used by all restricted areas and shows the total amount of restricted money that has been
used by all restrictions. The following diagram shows the relationship between these
accounts.
Unrestricted
Contribution Income
Holds the total
received as
unrestricted
contributions.
Each restricted area will have all three of
these accounts:
Keeps track of the
unrestricted portion of
the church’s total
equity.
Look at this account
to find the current
balance of the
restricted area.
ses
Clo
Clos
e
T
es
os
l
C
s To
To
Restricted Equity
o
Unrestricted Equity
Closes To
Cl
os
es
To
Balance Sheet Accounts
Released from
Restrictions
Expense & Transfer
Accounts
Shows the total
released from all
restrictions.
Show the amounts
expensed or
transferred.
Restricted
Contribution
Income
Restricted Release
Account
Shows the amount of
the restriction that
has been used.
Holds the total
amount received for
the restricted area.
Income Statement Accounts
So now that we know what accounts we need, we’ll look at how this works. The following accounts
were added to First Church’s chart of accounts to keep track of the New Cribs donor restriction.
Account
01-3210-101
01-4210-101
01-4810-101
Account Name
New Cribs Equity
New Cribs Income
New Cribs Release
Closes to
01-3210-101
01-3210-101
NOTE: In these examples we are using the same sub-account number for each group of
accounts that keep track of the donor restriction. It is not required that you setup your
accounts with the same sub-account number, but by doing so it makes the relationship
between the accounts clearer. This also allows the use of the Sub-Account Report to
quickly see the balances of these accounts.
To record the contributions for January 12th, the following transaction is posted.
Account
01-1110-000
01-4030-000
01-4210-101
Account Name
Checking Account
Tithes & Offerings Income
New Cribs Income
Description
January 12th Contributions
January 12th Contributions
January 12th Contributions
Debit
Credit
3,250
2,800
450
There is no difference between this transaction and how we would record unrestricted contributions.
When the 01-4210-101 New Cribs Income account was added, it was setup to close to the 01-3210101 New Cribs Equity account, which is a temporarily restricted equity account on the balance sheet.
When a Balance Sheet is run, the 01-4210-101 income account closes to the 01-3210-101 equity
Accounting for Contributions 4
account. This transfers the balance from the income statement to the balance sheet. This is what is
meant by closing to; each income, expense, and transfer account on the income statement is set to
close to or update an equity account on the balance sheet.
After posting the transaction, new reports are run:
First Church
Income & Expense Statement
January 1 - 12
First Church
Balance Sheet - January 12
Assets
Checking Accounts
Land & Buildings
Total Assets
$
Liabilities
Mortgage
$
6,650
50,000
56,650
$
20,000
Income
Contribution Income
Tithes & Offerings
$
Restricted Contributions
New Cribs
450
Total Income
Equity
Unrestricted Equity
36,200
Restricted Equity
New Cribs
450
Total Equity
36,650
Total Liabilities & Equity
$
5,200
$
5,650
Expenses
Fixed Expenses
Total Expenses
-
Net Income
$
5,650
56,650
On January 19th, First Church receives $2,000 in Tithes & Offerings and $1,100 towards the new
cribs. The following journal entry is recorded and new reports run.
Account
01-1110-000
01-4030-000
01-4210-101
Account Name
Checking Account
Tithes & Offerings Income
New Cribs Income
Description
January 19th Contributions
January 19th Contributions
January 19th Contributions
Liabilities
Mortgage
$
$
9,750
50,000
59,750
$
20,000
2,000
1,100
Income
Contribution Income
Tithes & Offerings
38,200
Restricted Equity
New Cribs
1,550
Total Equity
39,750
$
$
Restricted Contributions
New Cribs
Total Income
Equity
Unrestricted Equity
Total Liabilities & Equity
Credit
3,100
First Church
Income & Expense Statement
January 1 - 19
First Church
Balance Sheet - January 19
Assets
Checking Accounts
Land & Buildings
Total Assets
Debit
1,550
$
Expenses
Fixed Expenses
Total Expenses
Net Income
7,200
8,750
$
8,750
59,750
Accounting for Contributions 5
On January 20th, after the deposit is made, the church purchases three of the cribs for $400 each. The
following transaction records the purchase of the cribs.
Account
01-1830-000
01-1110-000
Account Name
Nursery Equipment
Checking Account
Description
Purchase new Cribs
Baby's R Us - New Cribs
Debit
Credit
1,200
1,200
Since the source of the money used to buy the cribs was from a donor restricted amount, an
additional journal entry needs to be recorded.
Account
01-4810-101
01-4999-000
Account Name
New Cribs Release
Released from Restrictions
Description
Purchase new Cribs
Purchase new Cribs
Debit
Credit
1,200
1,200
This journal entry tells the accounting system that donor restricted money was used. This is a very
important part of the process. Without this transaction, PowerChurch Plus will not know that money
for the new cribs has been used and to reduce the money set aside for that purpose. Let’s look at this
transaction in detail. The 01-4810-101 New Cribs Release account is debited for $1,200. This account
is setup to close to the New Cribs Equity account. When this account is debited it is reduced in value,
which in turn reduces the New Cribs Equity account. The 01-4999-000 Released from Restrictions
account is credited for the amount to be released. This account is setup to close to the Unrestricted
Equity account; when this account is credited it has the effect of increasing the Unrestricted Equity
account.
After the transactions are posted, the accounts have the following balances:
First Church
Income & Expense Statement
January 1 - 20
First Church
Balance Sheet - January 20
Assets
Checking Accounts
Land & Buildings
Nursery Equipment
Total Assets
Liabilities
Mortgage
$
$
8,550
50,000
1,200
59,750
$
20,000
Equity
Unrestricted Equity
39,400
Restricted Equity
New Cribs
350
Total Equity
$
39,750
Total Liabilities & Equity
$
59,750
Income
Contribution Income
Tithes & Offerings
$
Restricted Contributions
New Cribs
1,550
Release from Restrictions
Temp Restricted Release
New Cribs Release
Released from Restrictions
Released from Restrictions
Subtotal Release from Restrictions
Total Income
(1,200)
1,200
$
Expenses
Fixed Expenses
Total Expenses
Net Income
7,200
8,750
$
8,750
There are a few things to take note of after posting these transactions. Notice that the balance for New
Cribs Equity account is now $350. This is what we would expect to have right now for this purpose.
($450 + 1,100 -1,200 = $350) Notice that the Unrestricted Equity account has been increased by
$1,200. Once the donor restriction has been met, in accounting terms, the donor restricted amount is
reclassified to unrestricted. The second transaction entered is the transaction responsible for making
sure that the proper amount was moved from the New Cribs Equity to the Unrestricted Equity
account.
Accounting for Contributions 6
Also notice the new release section shown on the Income & Expense Statement. This section shows us
the amount of donor restricted money that has been used. We see in this section that we used $1,200
of the new cribs and it has been reclassified to the unrestricted area.
Let’s take a look at another report from PowerChurch Plus. The Changes in Equity report will show us
the changes in each of our equity accounts.
First Church
Changes in Equity
Beginning
Balance
EQUITY
Unrestricted Equity
Restricted Equity
New Cribs
TOTAL EQUITY
3000
3001
3200
3210-101
Income
Release from
Restrictions
Expenses
Ending
Balance
31,000
7,200
1,200
-
39,400
31,000
1,550
8,750
(1,200)
-
-
350
39,750
The Changes in Equity report shows us a quick synopsis of what happened in each of our equity
accounts. Using this report we can quickly see that our New Cribs account started with $0, we have
received $1,550 and have so far have used $1,200 leaving us with a $350 balance for this area.
On January 26th, First Church receives the following amounts in contributions: Tithes & Offerings
$2,350, New Cribs $400. In addition, one of the members puts in the offering basket a check for
$3,000 with a letter saying this amount is to be used as an extra principal payment on the church
mortgage. The following accounts were added to the Chart of Accounts to keep track of the new donor
restriction.
Account
01-3220-102
01-4220-102
01-4820-102
Account Name
Extra Mortgage Principle Equity
Mortgage Principle Income
Mortgage Principle Release
Closes to
01-3220-102
01-3220-102
The following journal entry is entered to record this week’s contributions.
Account
01-1110-000
01-4030-000
01-4210-101
01-4220-102
Account Name
Checking Account
Tithes & Offerings Income
New Cribs Income
Mortgage Principle Income
Description
January 26th Contributions
January 26th Contributions
January 26th Contributions
January 26th Contributions
Debit
Credit
5,750
2,350
400
3,000
Accounting for Contributions 7
After posting the transactions, new reports are run:
First Church
Income & Expense Statement
January 1 - 26
First Church
Balance Sheet - January 26
Assets
Checking Accounts
Land & Buildings
Nursery Equipment
Total Assets
$
$
Liabilities
Mortgage
$
Equity
Unrestricted Equity
20,000
41,750
Restricted Equity
New Cribs
Extra Mortgage Principle
Subtotal Restricted Equity
750
3,000
3,750
Total Equity
Total Liabilities & Equity
14,300
50,000
1,200
65,500
$
Income
Contribution Income
Tithes & Offerings
$
9,550
Restricted Contributions
New Cribs
Extra Mortgage Principle
Subtotal Restricted Contributions
1,950
3,000
4,950
Release from Restrictions
Temp Restricted Release
New Cribs Release
Released from Restrictions
Released from Restrictions
Subtotal Release from Restrictions
45,500
Total Income
65,500
Expenses
Fixed Expenses
Total Expenses
(1,200)
1,200
$
14,500
-
Net Income
$
14,500
That week the board decides to buy two more cribs. The following journal entry records the purchase
and the release:
Account
01-1830-000
01-1110-000
01-4810-101
01-4999-000
Account Name
Nursery Equipment
Checking Account
New Cribs Release
Released from Restrictions
Description
Purchase new Cribs
Baby's R Us - New Cribs
Purchase new Cribs
Purchase new Cribs
Debit
Credit
800
800
750
750
Only $750 is released from the New Cribs restriction because that is the remaining balance of the
cribs restriction. The board decided the $50 balance will be paid out of general fund money.
The mortgage payment is due at the end of the month. The normal mortgage amount is $1,300 of
which $400 is interest. The transaction to record the mortgage payment and the sending of the extra
$3,000 principal payment would be as follows:
Account
01-5610-000
01-2620-000
01-2620-000
01-1110-000
01-4820-102
01-4999-000
Account Name
Mortgage Interest
Mortgage Liability
Mortgage Liability
Checking Account
Extra Mortgage Release
Released from Restrictions
Description
January Mortgage Payment
January Mortgage Payment
Extra Principle Payment
Mortgage Payment
Extra Principle Payment
Extra Principle Payment
Debit
Credit
400
900
3,000
4,300
3,000
3,000
Both of these transactions recorded the release portion of the transaction along with the regular
transaction. After posting these entries, new financial statements are prepared.
Accounting for Contributions 8
First Church
Income & Expense Statement
January 1 - 31
First Church
Balance Sheet - January 31
Assets
Checking Accounts
Land & Buildings
Nursery Equipment
Total Assets
$
Liabilities
Mortgage
$
9,200
50,000
2,000
61,200
$
16,100
Equity
Unrestricted Equity
45,100
Restricted Equity
New Cribs
Extra Mortgage Principle
Subtotal Restricted Equity
-
Total Equity
45,100
Total Liabilities & Equity
$
61,200
Income
Contribution Income
Tithes & Offerings
$
9,550
Restricted Contributions
New Cribs
Extra Mortgage Principle
Subtotal Restricted Contributions
1,950
3,000
4,950
Release from Restrictions
Temp Restricted Release
New Cribs Release
Extra Mortgage Release
Subtotal Temp Restricted
Released from Restrictions
Released from Restrictions
Subtotal Release from Restrictions
(1,950)
(3,000)
(4,950)
4,950
-
Total Income
$
14,500
Expenses
Fixed Expenses
Mortgage Interest
Total Expenses
$
$
400
400
Net Income
$
14,100
First Church
Changes in Equity
Beginning
Balance
EQUITY
Unrestricted Equity
Restricted Equity
New Cribs
Extra Mortgage Payment
TOTAL EQUITY
3000
3001
3200
3210-101
3220-102
Income
Release from
Restrictions
Expenses
Ending
Balance
31,000
9,550
4,950
(400)
45,100
31,000
1,950
3,000
14,500
(1,950)
(3,000)
-
(400)
45,100
On February 2nd, First Church receives the following contributions: $2,250 in Tithes & Offerings and
$75 in memoriam to purchase flowers for the altar next Sunday.
The following accounts were added to the Chart of Accounts to keep track of the new donor restriction.
Account
01-3230-103
01-4230-103
01-4830-103
Account Name
Altar Flowers Equity
Altar Flowers Income
Altar Flowers Release
Closes to
01-3230-103
01-3230-103
Accounting for Contributions 9
The following journal entry records these amounts:
Account
01-1110-000
01-4030-000
01-4230-103
Account Name
Checking Account
Tithes & Offerings
Altar Flowers Income
Description
February 2nd Contributions
February 2nd Contributions
February 2nd Contributions
Debit
Credit
2,325
2,250
75
New reports are run after posting this journal entry
First Church
Income & Expense Statement
January 1 - February 2
First Church
Balance Sheet - February 2
Assets
Checking Accounts
Land & Buildings
Nursery Equipment
Total Assets
Liabilities
Mortgage
$
$
$
Equity
Unrestricted Equity
Income
Contribution Income
Tithes & Offerings
$ 11,800
Restricted Contributions
New Cribs
Extra Mortgage Principle
Altar Flowers
Subtotal Restricted Contributions
16,100
1,950
3,000
75
5,025
47,350
Restricted Equity
New Cribs
Extra Mortgage Principle
Altar Flowers
Subtotal Restricted Equity
75
75
Total Equity
Total Liabilities & Equity
11,525
50,000
2,000
63,525
47,425
$
63,525
Release from Restrictions
Temp Restricted Release
New Cribs Release
Extra Mortgage Release
Altar Flowers Release
Subtotal Temp Restricted
Released from Restrictions
Released from Restrictions
Subtotal Release from Restrictions
(1,950)
(3,000)
(4,950)
4,950
-
Total Income
$
16,825
Expenses
Fixed Expenses
Mortgage Interest
Total Expenses
$
$
400
400
Net Income
$
16,425
First Church
Changes in Equity
Beginning
Balance
EQUITY
Unrestricted Equity
Restricted Equity
New Cribs
Extra Mortgage Payment
Altar Flowers
TOTAL EQUITY
3000
3001
3200
3210-101
3220-102
3230-103
Income
Release from
Restrictions
31,000
11,800
4,950
(1,950)
(3,000)
31,000
1,950
3,000
75
16,825
-
Expenses
(400)
(400)
Ending
Balance
47,350
75
47,425
Accounting for Contributions 10
The flowers are purchased later that week, and the following journal entry records the payment.
Account
01-6465-000
01-1110-000
01-4830-103
01-4999-000
Account Name
Flowers Expense
Checking Account
Flowers Release
Released from Restrictions
Description
Altar Flowers
Altar Flowers
Alter Flowers
Alter Flowers
Debit
Credit
75
75
75
75
The flowers are purchased and the second part of the transaction is used to let PowerChurch Plus
know that the Flowers Restricted area needs to be reduced by $75. The transaction is posted and new
reports are run.
First Church
Income & Expense Statement
January 1 - February 3
First Church
Balance Sheet - February 3
Assets
Checking Accounts
Land & Buildings
Nursery Equipment
Total Assets
Liabilities
Mortgage
$
$
11,450
50,000
2,000
63,450
$
16,100
Equity
Unrestricted Equity
$ 11,800
Restricted Contributions
New Cribs
Extra Mortgage Principle
Altar Flowers
Subtotal Restricted Contributions
1,950
3,000
75
5,025
47,350
Restricted Equity
New Cribs
Extra Mortgage Principle
Altar Flowers
Subtotal Restricted Equity
-
Total Equity
Total Liabilities & Equity
Income
Contribution Income
Tithes & Offerings
47,350
$
63,450
Release from Restrictions
Temp Restricted Release
New Cribs Release
Extra Mortgage Release
Altar Flowers Release
Subtotal Temp Restricted
Released from Restrictions
Released from Restrictions
Subtotal Release from Restrictions
(1,950)
(3,000)
(75)
(5,025)
5,025
-
Total Income
$
16,825
Expenses
Fixed Expenses
Mortgage Interest
Altar Flowers Expense
Total Expenses
$
$
400
75
475
Net Income
$
16,350
First Church
Changes in Equity
Beginning
Balance
EQUITY
Unrestricted Equity
Restricted Equity
New Cribs
Extra Mortgage Payment
Altar Flowers
TOTAL EQUITY
3000
3001
3200
3210-101
3220-102
3230-103
Income
Release from
Restrictions
31,000
11,800
5,025
31,000
1,950
3,000
75
16,825
(1,950)
(3,000)
(75)
-
Expenses
(475)
(475)
Ending
Balance
47,350
47,350
Accounting for Contributions 11
In all the examples we have looked at for donor restricted giving, the restricted money was used
differently. In the first example, the church bought another asset (the cribs), in the second a liability
was reduced (the mortgage), and in the third an expense was incurred (altar flowers) because of the
donor restriction. But in each case, we used the same release transaction. Whatever the accounting
event that meets the donor restriction, add the transaction as you normally would, but add the
release transaction to show that you are using restricted money. The release transaction always
debits the specific release account and credits the released from restrictions account.
Donor Restricted Contributions - Permanent
An endowment is an example of a permanently restricted contribution. Normally the amount received
as an endowment is deposited into an investment account and the interest earned in that account can
be used for the purpose outlined when the endowment was given. These permanent donor restrictions
are handled the same way as temporary restrictions. We will still need three accounts to track each
permanent donor restriction. The only difference is each of the accounts will be in the permanent
restriction area in our chart of accounts instead of the temporary restriction area.
For example, a long time member, Ida Smith, recently passed away. Her will called for an endowment
of $500,000 to be established at First Church and the proceeds to be used to send children to church
camp. The following accounts were added to the Chart of Accounts to keep track of the new permanent
donor restriction.
Account
01-3310-201
01-4310-201
01-4910-201
Account Name
Smith Endowment Equity
Smith Endowment Income
Smith Endowment Release
Closes to
01-3310-201
01-3310-201
To record the endowment, the following journal entry is posted:
Account
01-1350-000
01-4310-201
Account Name
Investment Account
Smith Endowment Income
Description
Smith Endowment
Smith Endowment
Debit
500,000
Credit
500,000
Accounting for Contributions 12
First Church
Income & Expense Statement
January 1 - February 5
First Church
Balance Sheet - February 5
Assets
Checking Accounts
Land & Buildings
Nursery Equipment
Investment Account
Total Assets
Liabilities
Mortgage
$
$
11,450
50,000
2,000
500,000
563,450
$
16,100
Equity
Unrestricted Equity
47,350
Restricted Equity
Temporary Restrictions
New Cribs
Extra Mortgage Principle
Altar Flowers
-
Permanent Restrictions
Smith Endowment
500,000
Total Equity
Total Liabilities & Equity
547,350
$
563,450
Income
Contribution Income
Tithes & Offerings
$ 11,800
Restricted Contributions
Temporary Restrictions
New Cribs
Extra Mortgage Principle
Altar Flowers
Subtotal Temporary Restrictions
1,950
3,000
75
5,025
Permanent Restrictions
Smith Endowment
Subtotal Restricted Contributions
500,000
505,025
Release from Restrictions
Temp Restricted Release
New Cribs Release
Extra Mortgage Release
Altar Flowers Release
Subtotal Temp Restricted
(1,950)
(3,000)
(75)
(5,025)
Permanent Restricted Release
Smith Endowment
-
Released from Restrictions
Released from Restrictions
Subtotal Release from Restrictions
5,025
-
Total Income
$
516,825
Expenses
Fixed Expenses
Mortgage Interest
Altar Flowers Expense
Total Expenses
$
$
400
75
475
Net Income
$
516,350
Note: There are several accounting and legal issues associated with endowments. This
example is for illustration purposes only and is not meant to cover all such issues. Such
coverage is beyond the scope of this document. It is highly recommended that your church
consult with a qualified accountant and/or attorney before the establishment of any
endowment.
Accounting for Contributions 13
Pass-Thru Contributions
Contributions to be passed on to another non-profit organization are called “Pass-Thru Contributions”.
Examples of this type of contribution would be the “soup bowl” offering from the example in the
introduction. Other examples would also include the college choir that sings in the evening service
where a special offering is taken for them. To make it easier for people writing checks, all checks are
made payable to the church and the church writes one check to the college for the total. This would
also be considered a pass-thru contribution.
When deciding if a particular donation should be considered a pass-thru contribution, you should look
at who is responsible for making sure that the money is spent for tax-exempt purposes. If the church
is responsible to make sure that the money is spent for a tax-exempt purpose, then the church should
probably recognize the contributions as income. Typically a contribution would only be accounted for
as a pass-thru contribution when you turn the money over to another non-profit organization.
On February 9th, the college choir from a local bible college comes and sings for the evening service. A
total of $467 is taken up in a love offering. An announcement was made to make all checks payable to
First Church.
A new liability account is added to the Chart of Accounts to keep track of special offerings:
Account
01-2310-000
Account Name
Special Offerings Liability
Closes to
not applicable
A new contribution fund was also added. When this account was added, the credit account was set to
the 01-2310-000 Special Offerings Liability account instead of an income account.
The following accounting transaction records the deposit of the love offering.
Account
01-1110-000
01-2310-000
Account Name
Checking Account
Special Offerings Liability
Description
Choir Love Offering
Choir Love Offering
Debit
Credit
467
467
Accounting for Contributions 14
After posting, a new Balance Sheet and Income & Statements are generated.
First Church
Income & Expense Statement
January 1 - February 9
First Church
Balance Sheet - February 9
Assets
Checking Accounts
Land & Buildings
Nursery Equipment
Investment Account
Total Assets
$
$
Liabilities
Mortgage
Special Offerings
Total Liabilities
$
Equity
Unrestrited Equity
16,100
467
16,567
47,350
Restricted Equity
Temporary Restrictions
New Cribs
Extra Mortgage Principle
Altar Flowers
-
Permanent Restrictions
Smith Endowment
Income
Contribution Income
Tithes & Offerings
$ 11,800
Restricted Contributions
Temporary Restrictions
New Cribs
Extra Mortgage Principle
Altar Flowers
Subtotal Temporary Restrictions
1,950
3,000
75
5,025
Permanent Restrictions
Smith Endowment
Subtotal Restricted Contributions
500,000
505,025
Release from Restrictions
Temp Restricted Release
New Cribs Release
Extra Mortgage Release
Altar Flowers Release
Subtotal Temp Restricted
(1,950)
(3,000)
(75)
(5,025)
500,000
Total Equity
Total Liabilities & Equity
11,917
50,000
2,000
500,000
563,917
547,350
$
563,917
Permanent Restricted Release
Smith Endowment
-
Released from Restrictions
Released from Restrictions
Subtotal Release from Restrictions
5,025
-
Total Income
$
516,825
Expenses
Fixed Expenses
Mortgage Interest
Altar Flowers Expense
Total Expenses
$
$
400
75
475
Net Income
$
516,350
Notice that the Income & Expense Statement did not change. This is because the amount is shown as
a liability on First Church’s records. Pass-Thru contributions like this are shown as a liability and are
not considered income to First Church. When an amount is shown as a liability, it does not flow
through the Income & Expense Statement.
Later that week, when the check is cut to the college for the amount of the offering, the following
journal entry is recorded.
Account
01-2310-000
01-1110-000
Account Name
Special Offerings Liability
Checking Account
Description
Choir Love Offering
Choir Love Offering
Debit
Credit
467
467
Notice this transaction is an exact reversal of the original entry. The transaction reduces the bank
account by the $467 and pays off the liability amount.
Accounting for Contributions 15
New reports are run after posting the above entry.
First Church
Income & Expense Statement
January 1 - February 14
First Church
Balance Sheet - February 14
Assets
Checking Accounts
Land & Buildings
Nursery Equipment
Investment Account
Total Assets
Liabilities
Mortgage
Special Offerings
Total Liabilities
$
$
$
Equity
Unrestricted Equity
16,100
16,100
47,350
Restricted Equity
Temporary Restrictions
New Cribs
Extra Mortgage Principle
Altar Flowers
-
Permanent Restrictions
Smith Endowment
500,000
Total Equity
Total Liabilities & Equity
11,450
50,000
2,000
500,000
563,450
547,350
$
563,450
Income
Contribution Income
Tithes & Offerings
$ 11,800
Restricted Contributions
Temporary Restrictions
New Cribs
Extra Mortgage Principle
Altar Flowers
Subtotal Temporary Restrictions
1,950
3,000
75
5,025
Permanent Restrictions
Smith Endowment
Subtotal Restricted Contributions
500,000
505,025
Release from Restrictions
Temp Restricted Release
New Cribs Release
Extra Mortgage Release
Altar Flowers Release
Subtotal Temp Restricted
(1,950)
(3,000)
(75)
(5,025)
Permanent Restricted Release
Smith Endowment
-
Released from Restrictions
Released from Restrictions
Subtotal Release from Restrictions
5,025
-
Total Income
$
516,825
Expenses
Fixed Expenses
Mortgage Interest
Altar Flowers Expense
Total Expenses
$
$
400
75
475
Net Income
$
516,350
Notice the $467 is not shown as an expense for First Church. When the liability is paid it is not to be
considered an expense to First Church, just like when the money was received it was not considered
income.
Accounting for Contributions 16
Keeping track of donor restrictions using PowerChurch
Plus
Right now you are probably thinking that it is a lot of work to keep track of each of these individual
donor restricted areas. The good news is that PowerChurch Plus is going to keep track of most of this
information for you automatically.
PowerChurch Plus has several convenience features to help make the tasks of keeping track of donor
restricted money easier:
♦
Maintain List of Donor Restrictions – Use this data entry screen to list all the current donor
restrictions. When you have a new donor restriction, there is an assistant to help you setup the
necessary accounts for each restricted area.
♦
Release Restricted Funds Assistant – This assistant will help you add the release portion of the
transaction to your journal entry. It is available on the Enter Transactions, Modify Unposted
Transactions, Maintain Open Invoices, Maintain Manual Checks, and Maintain Auto-Repeating
Entries screens.
♦
Reminders if donor restricted money can be used – PowerChurch Plus can remind you to
release donor restricted money on accounts you setup. If you have accounts that are normally
used with donor-restricted money, PowerChurch Plus can remind you to run the Release
Restricted Funds Assistant, when these accounts are used in a transaction.
♦
Cash Management Report – Use the Cash Management Report to make sure that money that has
already been committed to other areas is not used. This report pulls information from the Fund
Accounting, Contributions, and Accounts Payable modules to show the account balances after
posting has been completed.
♦
Changes in Equity Report – This is a really easy to understand report that shows the beginning
balance, income, and amounts used for each donor restriction. Use this report for the committee
that wants to know what the beginning balance was, how much came in, how much was used, and
what the ending balance is for each donor restriction.
Maintain List of Donor Restrictions
The Maintain List of Donor Restrictions screen keeps a list of all your current donor restrictions. This
is where you go to tell PowerChurch Plus what donor restrictions you have. Besides the description of
the donor restriction, you can add notes specific to this restriction, such as how the donor restriction
Keeping track of donor restrictions using PowerChurch Plus 17
can be used or the circumstances surrounding the contribution. These notes will be displayed when
releasing the entry. This makes it easier to remember the uses of each specific donor restriction.
Adding a new donor restriction
When you click Add on the Maintain List of Donor Restrictions screen, PowerChurch Plus will display
an assistant that will walk you through the six steps of creating a new donor restriction. Each step of
the assistant will provide information about the process and type of account that needs to be added.
STEP 1: Specify the description of the donor restriction.
Enter the name, type, which accounting fund, and any notes about the description.
♦
Restriction name – The name can be up to 25 characters in length. Enter a descriptive name
to refer to this donor restriction.
♦
Restriction type – Select either Temporarily Restricted, or Permanently Restricted based on
the instructions from the donor. Most donor restricted giving is going to be considered
temporarily restricted, unless the gift is for an endowment fund or similar type of gift.
♦
Accounting fund – Enter the accounting fund that is going to keep track of this restriction.
Click the magnifying glass or press F2 to select an accounting fund.
♦
Notes – Enter any needed notes about this restriction. This is a good place to record any
information such as how the money is to be used or any additional information needed about
this contribution.
After completing all the information click Next.
For each donor restriction, you will need three accounts: equity, income, and release accounts. In
the next three screens, PowerChurch Plus will prompt you for each account in turn. If the account
has already been added to you chart of accounts, click the “Use existing account” check box and
select the account from the list. If the account has not been added, enter the account number,
description, and level.
Keeping track of donor restrictions using PowerChurch Plus 18
Step 2: Specify the equity account.
The Equity account is used to hold the current
balance of the restriction. If the account has
already been added, select the “Use existing
account” option and select the account from the
list. Otherwise enter the information to add a new
account. Click Next.
STEP 3: Specify the income account.
The income account keeps track of the amounts
received for this donor restriction. Again, if the
account has already been added to your chart of
accounts, check the “Use existing account” option
and select the account from the list. Otherwise
enter the information for the new account and
click Next.
STEP 4: Specify the release account.
The release account keeps track of how much
money has been used or released for this
particular restriction. Again, if the account has
already been added to your chart of accounts,
check the “Use existing account” option and select
the account from the list. Otherwise enter the
information to add a new account and click Next.
Keeping track of donor restrictions using PowerChurch Plus 19
STEP 5: Specify the expense account.
This step is optional and will not be needed for all
donor restrictions. If needed, enter information to
add a new expense account. If you do not need to
add a new expense account, leave the account
number blank and just click Next.
STEP 6: Specify the contribution fund.
Enter the information about the contribution fund
used to record donations to this restriction. This
step is optional, but it will most likely be used. If
the contribution fund has already been added in
the contributions module, check the “Use existing”
option and select the contribution fund from the
list. Otherwise, enter the information to add a new
contribution fund. Click Next.
Finish
Click Finish and PowerChurch Plus will
automatically add the accounts you specified and
make sure they are setup correctly to track the
donor restriction.
That is all there is to adding the new restriction.
In one process, PowerChurch Plus helps you
create the needed accounts and makes sure that
the link from the contributions module to the
accounting module is correct as well.
Keeping track of donor restrictions using PowerChurch Plus 20
Using the Release Restricted Funds Assistant
The Release Restricted Funds assistant is used to make sure the release transaction is added to your
accounting transaction correctly. This assistant is available on every screen where an accounting
transaction can be entered. Whenever you are entering a transaction that needs to release restricted
money, just click the Release Restricted Funds button and PowerChurch Plus will launch the
assistant.
The assistant will list all of the donor restrictions defined
in PowerChurch Plus. The notes entered about each
restriction appear in the box below the list. Refer to this
area to see how a restriction can be used or for more
information about a particular restriction.
Select the appropriate donor restriction and click Next.
Enter the amount of the restriction that is being used as
well as any notes as to how the restriction is being used.
Click Finish.
PowerChurch Plus will add the
release entry to your journal
transaction and add the notes
you entered to the notes for the
journal entry as well. You do
not have to remember which
account needs to be debited or
credited for this part of the
transaction. Just select the
appropriate restriction, enter
the amount, and PowerChurch
will do the rest.
Keeping track of donor restrictions using PowerChurch Plus 21
Reminders if donor restricted money can be used
In the third example above, restricted money was used to buy flowers for the altar. If restricted money
is often used for this purpose, we can tell PowerChurch Plus to remind us about donor restrictions
when we use this account.
To setup a donor restriction reminder for an account:
1. From the Fund Accounting menu, Select Maintain Chart of Accounts.
2. Use the Locate button to select the account.
3. In the accounting fund where this account uses restricted money, click the details button.
PowerChurch Plus displays the account details screen.
4. Click the “This account uses restricted money” checkbox.
Keeping track of donor restrictions using PowerChurch Plus 22
5. Click Save to save the changes to the account.
Now when this account is used in a transaction, PowerChurch will remind you to check and see if
donor restricted money should be released.
Reports
The following reports show information regarding donor restrictions.
♦
Balance Sheet and Balance Sheet by Fund reports – Shows the current balance of each donor
restricted area in the equity section of the report.
♦
Income & Expense and Income & Expense by Fund reports – These reports show the amount
received for each donor restriction and the amount released during the report period.
♦
Statement of Activities report – This is the GAAP compliant income statement. This report
shows separate columns for unrestricted, temporarily restricted and permanently restricted
income. It also shows the amounts released from restrictions as well.
♦
Cash Management Report – This report is designed to help make sure that money is used for its
designated purposes and that cash is available to pay current bills. For more information on this
report see your PowerChurch Plus manual.
♦
Changes in Equity report – Use this report to show the beginning balance of each equity account,
the amount received, released and expenses for each account as well. This report is designed for
non-accounting people who want to know what the beginning balance is, how much came in, and
how much was spent.
♦
Accounting Fund Balances report – This is another report that shows the current balances of
Equity accounts separated by accounting fund.
Keeping track of donor restrictions using PowerChurch Plus 23
Conclusion
Keeping track of donor restrictions can be a detailed task. Using PowerChurch Plus version 9 will
make this complex task easier. Using the new features built in to PowerChurch Plus version 9, the
only difference in recording a normal accounting transaction that uses unrestricted money and a
transaction that uses donor-restricted money is the release portion.
To keep track of Donor Restrictions:
1. Add the donor restriction using the Maintain Donor Restrictions dialog in Fund Accounting.
2. Record the income just as you would if there was no donor restriction.
3. Use the Release Restricted Funds assistant when using donor restricted amounts.
Record the entry as you normally would in either Accounts Payable or Fund Accounting, and use
the Release Restricted Funds assistant to add the release portion to your journal transaction.
Without the release portion, PowerChurch Plus will not know that donor restricted money was
used.
4. Run the Balance Sheet or Changes in Equity report.
These reports will show you the current balances of your donor restrictions.
We have looked at the four different types of contributions and the proper way to show them on the
church’s records. This paper is meant to be just an introduction to the accounting concepts and is not
designed to be an exhaustive reference on the proper accounting of donor restrictions. We would
encourage your church to find and work with an accountant who is familiar with non-profit
accounting.
NOTE: In this document, we are only dealing with the accounting treatment
of contributions. The legal treatment of donor restricted contributions may be
different than the accounting treatment. A good source of information on this
topic can be obtained from the “Pastor, Church & Law” available from
Christian Ministry Resources (www.churchlawtoday.com). Your church
may wish to review the applicable laws with a qualified attorney before
defining a contribution policy.
Conclusion 24
Definitions
Accounting Fund: An accounting fund is a self balancing chart of accounts. Fund Accounting has
traditionally been the way for a non-profit organization, like a church, “to segregate resources for
specific activities or objectives in accordance with special regulations, restrictions, or limitations. Each
fund has assets, liabilities, and a fund balance (equity or net assets), as well as its own revenue and
expense accounts.”i This method of keeping track of donor restrictions can be used with fund
accounting as each fund can have each type of net assets.
Contribution: A contribution is a non-reciprocal transfer from one party to another. In other words,
the person giving the contribution does not receive anything other than possibly an intangible religious
benefit in exchange for their contribution. Most contributions will be in the form of cash, but
contributions could also be in the form of property, (i.e. stocks or land) or the forgiveness of a debt (i.e.
forgiving a loan the church had taken out from the contributor). If someone receives something in
exchange for the money given, it is not considered a contribution.
Equity: Equity is the residual interest in the assets of an entity after deduction of its liabilities. Other
terms that are often used for equity are Net Assets or Fund Balance. Current accounting trends are for
non-profit organizations, like churches, to use the term ‘Net Assets’. However, in this paper we use the
word Equity because it is the most widely understood term.
Donor Condition: A donor condition is when there is a future event whose occurrence or failure to
occur releases the donor from its obligation or gives the donor the right to the return of the asset it has
given. A donor condition is different than a donor restriction. For example, a donor could place a
condition that the church building be painted orange. This would be considered a donor condition.
Donor conditions are handled differently than the accounting methods discussed in this paper. If you
do have a donor condition, contact a qualified accountant for help with the proper way to report the
transactions on your financial statements.
i
Gregory B Chapin, et al., Accounting and Financial Reporting Guide for Christian Ministries (Washington D.C.,
Evangelical Joint Accounting Committee, 1994), 4.
© 2004, PowerChurch Software
PowerChurch Software
328 Ridgefield Ct
Asheville NC 28806
Web
E-Mail
Phone
www.powerchurch.com
info@powerchurch.com
(800) 486-1800 or
(828) 665-1818
Definitions 25