Church and Christian Ministry Financial
Management
By Corey A. Pfaffe, CPA, PhD; Fall 2013
Accounting Methods
Accrual Basis; GAAP (Generally Accepted
Accounting Principles)
 Cash Basis
 Modified Cash Basis

Sample Local Church
December 31, 20xx
Assets
Current Assets
Cash
Marketable Securities, at market value
Receivables
Property, Plant & Equipment
Land & Buildings, at cost
Furniture, Fixtures & Equipment, at cost
Less Accumulated Depreciation
$17,000
45,000
2,000
1,250,000
200,000
-350,000
Total Assets
Liabilities & Fund Balances
Current Liabilities
Accounts Payable
Accrued Liabilities
Notes Payable
$64,000
1,100,000
$1,164,000
$12,000
8,000
15,000
$35,000
Long-term Debt
Mortgage Payable
570,000
Total Liabilities
605,000
Fund Balances
Unrestricted
Temporarily Restricted
Permanently Restricted
Total Liabilitites & Fund Balances
476,000
35,000
48,000
559,000
$1,164,000
Accrual (GAAP)
Balance Sheet
Assets
Liabilities, current & longterm
Fund Balances, unrestricted
& restricted
Sample Local Church
Year Ended December 31, 20xx
Temporarily Permanently
Unrestricted Restricted
Restricted
Revenues
Contributions
Investment Gains and Losses
$780,000
$70,000
Total
$5,000 $855,000
6,000
6,000
Investment Income
Auxiliary--Camp
Miscellaneous
4,000
32,000
4,000
4,000
32,000
4,000
Released from Restrictions
55,000
-55,000
881,000
15,000
Total Revenues
0
5,000
901,000
Expenditures
Ministry
Teaching & Preaching
Music
Youth
Occupancy
Auxiliary--Camp
Interest
Miscellaneous
Total Expenditures
Increase (decrease) in Fund
Balances
Fund Balances, January 1, 20xx
Fund Balances, December 31,
20xx
456,000
52,000
62,000
190,000
35,000
28,000
12,000
456,000
52,000
62,000
190,000
35,000
28,000
12,000
835,000
0
0
835,000
46,000
15,000
5,000
66,000
430,000
20,000
43,000
493,000
$476,000
$35,000
$48,000 $559,000
Accrued (GAAP)
Statement of
Activity
Revenues &
Expenditures are
categorized in
columns based on
donor restrictions.
Ending Fund
Balances reported
here must equal
Balance Sheet
amounts.
Expenditures are
reported by Activity.
GAAP Supplementary Information:
Functional Expenses
Sample Local Church
Year Ended December 31, 20xx
Program
Compensation
Management
Fund-
& General
Raising
Total
$434,000
$89,000
$523,000
Office Expenses
19,000
22,000
41,000
Depreciation
12,000
39,000
51,000
Utilities
5,000
73,000
78,000
Repairs & Maintenance
2,000
31,000
33,000
28,000
28,000
13,000
68,000
81,000
$485,000
$350,000
$0 $835,000
Interest
Miscellaneous
Total Expenditures
Expenditures that
were reported by
activity on the
Statement of
Activities are
recategorized
based on function
(program,
management &
general, or fundraising) and nature.
Cash Basis Balance Sheet
Sample Local Church
December 31, 20xx
Assets
Current Assets
Cash
Marketable Securities, at market value
Total Assets
$17,000
45,000
$62,000
Fund Balances
General Fund
$51,000
Designated Funds
11,000
Endowment Funds
0
Total Fund Balances
$62,000
A portion of the cash and
equivalent-to-cash resources was
received from donors who
designated the purposes for which
they could be spent. At the end of
December, $11,000 of these gifts
were yet to be disbursed for their
restricted purposes.
$51,000 could be spent for any
purpose authorized by the church
itself since the original donations
were unrestricted.
Cash Basis Report of Receipts &
Disbursements (General Fund)
Sample Local Church
Year Ended December 31, 20xx
Receipts
Contributions
Investment Income, Gains & Losses
Miscellaneous
Total Revenues
Disbursements
Compensation
Occupancy
Mortgage Payments
Capital Expenditures
Office
Miscellaneous
Total Expenditures
Increase (decrease) in Fund Balance
General Fund Balance, January 1, 20xx
General Fund Balance, December 31, 20xx
$160,000
4,000
2,000
166,000
68,000
34,000
22,000
12,000
19,000
3,000
158,000
8,000
43,000
$51,000
Unrestricted contributions and
other receipts exceeded
disbursements of these funds by
$8,000 during the year ended
December 31.
Payments on long-term debt and
expenditures for long-lived assets
(“Capital Expenditures”) are
reported as disbursements.
This reporting format (and the
cash basis) is perhaps the easiest
to understand among the three
choices.
Cash Basis Supplementary Information
Sample Local Church
Supplementary Information--Designated Funds
Year Ended December 31, 20xx
Designated Fund Balances, January 1, 20xx
Receipts
Disbursements
Designated Fund Balances, December 31,
20xx
Missions
Other
Total
$4,000
18,000
-16,000
$3,000
3,000
-1,000
$7,000
21,000
-17,000
$6,000
$5,000
$11,000
Sample Local Church
Supplementary Information--Mortgage Activity
Year Ended December 31, 20xx
Mortgage Balance, January 1, 20xx
Principal Payments
Interest Payments
$100,000
$7,000
-7,000
$5,000
n/a
Mortgage Balance, December 31, 20xx
Accounts Payable Balance, December 31, 20xx
$93,000
$1,000
While cash basis
reports are easy to
understand,
supplementary
information should
be provided.
Modified Cash Basis Balance Sheet
Sample Local Church
December 31, 20xx
Assets
Current Assets
Cash
$17,000
Marketable Securities, at market value
$45,000
Accounts Receivable
2,000
Total Assets
$64,000
Liabilities & Fund Balances
Accounts Payable
$1,000
Fund Balances
General Fund
$51,000
Designated Funds
11,000
Endowment Funds
1,000
Total Fund Balances
63,000
$64,000
The modified cash basis omits
long-lived assets and long-term
debt from the balance sheet,
but includes short-term
receivables and payables.
This approach avoids budgeting
challenges and other
shortcomings sometimes
experienced when a strict cash
basis is used.
Modified Cash Basis Report of Receipts &
Disbursements (General Fund)
Sample Local Church
Year Ended December 31, 20xx
Receipts
Contributions
Investment Income
Miscellaneous
Total Revenues
Disbursements
Compensation
Occupancy
Mortgage Payments
Capital Expenditures
Office
Miscellaneous
Total Expenditures
Increase (decrease) in Fund Balance
General Fund Balance, January 1, 20xx
General Fund Balance, December 31, 20xx
Favorable
(Unfavorable)
Variances
Actual
Budget
$160,000
4,000
2,000
$155,000
5,000
1,000
$5,000
-1,000
1,000
166,000
161,000
5,000
68,000
34,000
22,000
12,000
19,000
3,000
67,000
36,000
22,000
12,000
20,000
2,000
-1,000
2,000
0
0
1,000
-1,000
158,000
159,000
1,000
8,000
$2,000
$6,000
43,000
$51,000
Budgeted
revenues are
“projected”
while most
budgeted
disbursements
are “authorized.”
Variance analysis
can also be made
based on
percentage of
actual to budget.
Modified Cash Basis Chart of Accounts
Cash
Petty Cash
Cash in Bank Checking
Cash in Bank Savings
Cash in Bank CDs
Marketable Securities
Mutual Fund
Public Company Stock
Accounts Receivable
Accounts Payable
Credit Card Payable
Endowment Funds
None
Revenues
Contributions
Miscellaneous
Youth
Compensation
Office Expenses
Investment Gains & Losses
Capital Expenditures
Investment Income
Miscellaneous
Auxiliary—Camp
Occupancy
Miscellaneous
Utilities
Expenditures
Repairs & Maintenance
Ministry
Auxiliary—Camp
Teaching & Preaching
Compensation
Short-term Bank Note Payable
Compensation
Office Expenses
Fund Balances
Office Expenses
Capital Expenditures
General Fund
Capital Expenditures
Miscellaneous
Designated Funds
Miscellaneous
Interest
"Faith Promise" Missions
Music
Miscellaneous
Vehicle Replacement
Compensation
Fixed Assets
Camp Scholarships
Office Expenses
Long-term Debt
Benevolence
Capital Expenditures Depreciation
Financial Audits
Independent Certified Public Accountant audit
 Internal inspection—purposes:




To provide accountability for church leaders and staff
as stewards of the resources God has committed to
the church
To secure the confidence of the members in the
reliability of the church financial reports
To maintain credibility of the church as a self-policing
organization
The “Audit” Committee
Organization
 Reporting

Report of Audit Committee
For Year Ended December 31, 20xx
We have inspected the financial reports and related supporting
records of the church for the year ended December 31, 20xx. The
following procedures were completed:
…
In the course of our inspection we identified several
recommendations that have been communicated to the church
leadership.
Inspection Procedures—Illustrated




Compared budget amounts adopted by the church to actual
receipts and disbursements for the year. Investigated major
discrepancies and received satisfactory explanations.
Traced all significant Balance Sheet amounts to appropriate
supporting documents.
Reconciled Fund Balances reported on the previous year’s
Balance Sheet with current year increases and decreases in
Fund Balances and current end-of-year Fund Balances.
Traced a sample of receipts and disbursements reported on
the Statement of Receipts and Disbursements to
bookkeeping records. Evaluated adequacy of
documentation.
Accounting Software for Churches and
Christian Ministries

QuickBooks—Online or Pro (or Peachtree Complete)



Advantages: well-known (likely to find members who are
familiar with its use); easy to use; relatively inexpensive
Disadvantages: not a substitute for formal accounting training;
poor internal controls; Not-for-profit version adds little value
Shelby (or other church-specific softwares) (http://www.shelbyinc.com/)


Advantages: specifically designed for church and ministry
applications; valuable supplementary products available in
donor and church management, etc.
Disadvantages: more expensive & complex
Giving Records



Ministries must carefully follow IRS guidelines when
receiving cash and property gifts. IRS Publication 526 can be
helpful.
Software can be very helpful in recording and reporting
donor activity.
Annual reports to donors
 $250+ contributions must be specifically acknowledged
(date and amount); otherwise, total contributions can be
reported on annual statements to donors.
 Quid Pro Quo Disclosure: “The only benefit provided to
the donor in return for his or her donation was an
intangible religious benefit.”
Records Retention



Most financial and employment
records should be retained for
up to seven years.
A copy of each year’s annual
report should be kept
indefinitely.
Minutes of official meetings
should be kept indefinitely.
Employment Records and Reporting

Churches and Christian organizations must meet virtually all
of the records and reporting requirements stipulated for
businesses.





W-2 / W-3
W-4 / I-9
1099-MISC
941 / 944
FUTA / SUTA
Tax-exempt Status


The most recognized Internal Revenue Code section in the
not-for-profit organization world: IRC 501 (c)(3)
Benefits of tax-exempt status




Ability to receive contributions that are tax-deductible to
donors
Elimination of taxes 1) on profits, 2) on real estate, 3) on
purchases normally subject to sales taxes, and 4) on salaries
and wages that normally require employer-paid unemployment
taxes
Application Form 1023
Annual information return Form 990
Internal Controls


Cash receipts—“At no time is uncounted money to be in the
possession of only one person.”
Cash disbursements—Before a payment is made, a ministry
must assure that the product or service was
1. purchased by an authorized individual
following an authorized procedure,
2. received in a useable condition,
3. priced as previously agreed.
 Other controls