sitebookfundaccounting

Fu und Acccoun ntingg Qu uestiionss, Co omm ments, aand Tipss

© copy yright 2012 2 All rights reserved w www.freecchurchacco ounting.co om

Notice: The information provided in this book is not meant to substitute for the advice and covered opinions of a qualified tax professional. The materials contained in this book are provided for general information purposes only and do not constitute legal or other professional advice on any subject matter. The information contained within this book does not fall within the IRS definition of a covered opinion; therefore, it cannot be used to avoid IRS penalties.

Introduction The great thing about nonprofit and church volunteers and staff is their willingness to help others in their position.

Church accounting and nonprofit accounting can be a daunting task for many small churches and nonprofit organizations.

More often than not, a member of the church with little or no accounting knowledge is drafted into the church treasurer or church financial secretary position.

The members expect these draftees to "take care" of the finances of the church even though they have had no prior training or experience.

This book contains a brief overview of basic and fund accounting … and questions/answers, comments, and ideas from other nonprofit and church volunteers and staff. They cover a vast area of nonprofit and church accounting topics.

Many of these situations you may have faced before or could possibly face in the future, so you may want to print this book and keep it in a binder for future references.

I want to thank everyone that takes out time in their busy schedules to answer questions and comments on my site: http://www.freechurchaccounting.com You have been an invaluable help to me and other nonprofit and church administrators.

This book is dedicated to each and every one of you!

Fund Accounting and the Basics of Accounting Many churches and nonprofits use fund accounting. It is an accounting method that groups assets and liabilities according to the specific purpose for which they are to be used. It helps churches and nonprofits keep restricted and unrestricted funds separate.

In the mid 1990’s, the Financial Accounting Standards Board (FASB) issued the Statement of Financial Accounting Standards (SFAS) Numbers 95, 116, 117, and 124 which describes the way nonprofits should account for contributions, present their financial statements, and account for certain investments.

A few years ago the FASB organized all these accounting standards for nongovernmental organizations, including churches and nonprofits together under one title: FASB ASC Topic 958, Not‐For‐Profit Entities.

It didn't change any of the accounting standards for churches, just tried to simplify them by putting them all together under one topic.

The emphasis of the SFAS financial statement reporting is now on “net assets” classification, rather than tracking each fund. (Net assets mean more or less the same as owner’s equity or net worth in a for‐profit business.)

The net asset categories are:  Unrestricted These funds are donations that are available to use toward any purpose.

Unrestricted funds usually go toward the operating expenses of the organization.  Temporary Restricted These funds may be restricted by purpose or time, but the restrictions are not permanent. An example of a purpose‐restricted gift is a gift for a certain project or for the purchase of equipment. An example of a time‐restricted gift is a contribution of a trust, annuity, or term endowment where the principal of the gift is restricted for a certain term of time.

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 Permanently Restricted These funds are gifts restricted by a donor for a designated purpose or time restriction that will never expire. An example is an endowment gift with the stipulation that the principal is permanently unavailable for spending, but the investment income from the principal may be used in current operations.

Net assets can now be combined into these three categories and you are no longer required to track each fund individually.

However, SFAS 117 did not do away with fund accounting as it concerns only financial statements, not reports used internally.

Many small churches continue to use fund accounting. They find that tracking their financial activities internally is easier if they stay with the fund accounting method.

Before I go any further, let’s take a second to go over some basic accounting principles.

There are two basic accounting bookkeeping practices: single entry bookkeeping and double entry bookkeeping Single entry bookkeeping can be employed by small churches or nonprofits where a balance sheet is not required for financial control or tax purposes.

Double entry bookkeeping is required for all organizations that must produce both a Statement of Activity (Income Statement) and a Statement of Financial Position (Balance Sheet).

To really understand the difference between these two bookkeeping systems, you must understand some basic accounting concepts.

The two most important basic accounting concepts: 1. The Basic Accounting Equation which is Assets = Liabilities + Net Assets.

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(A nonprofit organization does not have owners, so the third part of the above accounting equation is known as net assets (instead of owner's equity or stockholders' equity).

2. Debit = Credit (Very important double entry bookkeeping rule! In a transaction ‐ all debits MUST equal all credits.)

Let’s discuss the second one first. In accounting, accounts are set up to look like a “T” and are actually called T accounts –very imaginative huh?

Anyway...in this “T” account – amounts entered on the debit side (left hand side) are called debits and amounts on the credit side (right‐hand side) are called credits. 'To debit' means to make an entity in the left‐hand side of an account' and 'To credit' means to make an entry in the right‐hand side of an account.

Important point! The words debit and credit have no other meaning in accounting. Most people think a debit and credit as a positive or a negative. They are not either.

Now...back to rule number 2...Debits and credits must be equal for all entries in a double entry bookkeeping system.

A debit or credit will either increase or decrease an account balance depending on what type of account you are working with.

Now to the first basic accounting concept: Assets = Liabilities + Net Assets or Net Assets = Assets ‐Liabilities.

What this really means is that, from an accounting perspective, the Net Assets (also known as Net Worth, Retained Earnings, or Fund Balance) is the difference between what your organization owns (Assets) and what your organization owes (Liabilities).

Learning those two basic concepts wasn’t so hard was it?

Ummm...well...let’s move on to something easier...

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Single Entry E Boo okkeeping g There are advantaages and disadvantagges of usinng a single entry bookkkeeping system..

The main advantaage is the ssimplicity. It involves the simpleest form of keeping records of financiaal transacttions. d and one o of Essentiaally the orgganization makes two lists, onee of incomee received expense es incurred d. This is be eneficial fo or organizaations thatt rely on vo olunteers w with virtuallyy zero acco ounting or bookkeeping knowleedge.

It is similar to a ch heck register. You add your increases and d take away your es...all the while keeping a runn ning daily balance. expense The main disadvantage of siingle entryy bookkeepping is the absence o of financial mited detailed records of asset aand control due to lim liability accounts. o easier to make erro ors with. W With doublee It is also entry bo ookkeeping everything must baalance.

Doublee Entry Bo ookkeepin ng Most m medium and d large orgganizationss use a douuble entry syystem whicch tracks th heir incom me (donatio ons) and exxpense AN ND their asssets and liab bilities.

Double entry bookkeeping is require ffor all orgaanizations tthat are reequired to e a statement of its aassets and liabilities ((a Balance Sheet or SStatement of produce Financiaal Position).

In a dou uble entry bookkeeping system m, at least ttwo entriess are madee with every financiaal transactiion recorde ed...a debiit and creddit. Each traansaction must balance each other. For evvery increaase in one account, there is an opposite ((and equal) her. decreasse in anoth

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Double entry bookkeeping ccomputerizzed system ms have e of using tthem. Mosst of the some a long way iin the ease e one entry to make and the prrogram time you just have will do tthe additio onal entries required to balancee your transacttion.

Below aare some simple acco ounting terrms every church or nonprofit financial adminisster should d know.

Let’s staart with the basic deffinition of accountingg: Accoun nting is th he process of docum menting th he financiaal transacctions of yyour organizzation in a way thatt you or otther interrested parrties can aanalyze an nd make sound s fina ancial decisions reg garding yo our organiization.

Paying yyour churcch’s utility bill affectss your orgaanization’s financial ccondition because e it would then have less cash o on hand. SSuch an eco onomic event or conditio on that directly changes your o organizatioon’s financiial conditio on is a financiaal transactiion.

All finan ncial transaactions can n be stated d in terms of changess in the thrree elements of this aaccountingg basic equation whicch is to thee base of all accountiing: Assets = = Liabilities + Ownerr’s Equity Accountting system ms are designed to sh how the inncreases an nd decreasses in each h part of tthe above accounting basic equation in aa separate record. Th his record iis called an account.

For example, since e cash app pears on th he all Stateements of FFinancial P Position (Balance Sheet), aa separate record is kkept of thee increasess and decreeases in cash. e, a separaate record is kept of tthe increasses and deecreases fo or supplies, Likewise equipment, notess payable aand other b balance sheet items.

Similar records wo ould be kept for Stattement of A Activity (In ncome Stattement) iteems, e expenses,, rent expeenses, etc. such as contributiions, wage 5

A group of accounts which contains all of the Statements of Financial Position and Statement of Activity accounts is called a ledger. A list of the accounts in the ledger is called a chart of accounts.

The accounts are usually listed in the order in which they appear in the financial statements. The Statements of Financial Position accounts are usually listed first, in the order of assets, liabilities, and fund equity. The Statement of Activity accounts are then listed in the order of income and expenses.

Each of these major classifications is briefly described below: Assets are resources you own and add value to your business. Examples of assets include cash, account receivables(money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for), supplies, prepaid expenses (such as insurance) buildings, equipment, and land.

Current Assets are resources that you can expect to turn into cash or be used up within a year’s time.

Noncurrent Assets are resources that are NOT expected to turn into cash or be used up within a year’s time such as property, equipment, and long term investments. Noncurrent assets also included fixed assets.

Fixed Assets are assets that your business owns that are used to operate your business such as land, buildings, equipment, and office furniture. Assets not intended to sell to your customers.

Liabilities are debts owed by your business. Liabilities are often identified on your balance sheet by titles that include the word payable. Examples of liabilities include: accounts payable (money owed to vendors for products and services purchased on credit), notes payable and wages payable.

Current Liabilities are debts due within a year of your balance statement’s date.

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Long Te erm Liabilitties are de ebts that arre not payaable within n a year off your balance stateme ent’s date such as a long term b bank loan.

Equity is the nonprofit or chu urch’s righ ht to the assets of the organizatiion. ues are incrreases in th he organization’s equuity. Examples of revvenue inclu ude Revenu donatio ons, fund raaiser net in ncome, and d rent reveenue.

Expensees are asse ets used up p or service es consum med in the p process of operating the church or nonproffit. Examples of typiccal expensees include wage expeense, rent expense e, utilities expense, ssupplies exxpense, andd miscellan neous expense.

unting term ms in mindd let’s go ba ack to the Okay with that brrief overvieew of accou of fund acccounting… basics o

ng. One is ccommerciaal accountiing that is There are two maain form off accountin ons and fuund accounnting which h is used used primarily by for‐profit organizatio almost exclusivelyy by non‐profit organ nizations.

One of tthe biggest hurdles tthat new church and nonprofit volunteerr staff face...is understtanding the e differencce between n these tw wo forms off accountin ng.

Commeercial accou unting is alll about the e bottom lline...deterrmining wh hether a businesss is makingg a profit.

Fund acccounting is about making sure there are enough m monies in each fund tto carry ou ut the churrch’s or no onprofit’s m mission.

To acco omplish this goal, non nprofit organizationss set up theirr accountin ng systemss to identiffy both thee source o of funds an nd the use of funds.

What iss a fund?

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The dicttionary deffines a fun nd as a sum m of moneyy or other resources whose principaal or intere est is set ap part for a sspecific objjective.

Before I go any further let m me emphassize what aa fund is no ot. A fund is NOT an asset acccount‐‐a cchecking or savings aaccount.

A fund iis something restricted for a paarticular puurpose.

For example, yourr church is saving forr renovatio ons to yourr Sunday School room ms.

You havve opened a saving account to deposit alll the moniees received d for this purpose e.

In your accountingg records, you would d not set up the nam me of the saavings acco ount as a fun nd. You wo ould set up a fund titled “Buildinng” or “SS Renovatio ons”, etc.

Let me also state here that yyou do nott need to o open a sep parate checcking or saving accountt for each ffund. Don’t misunde erstand mee here…I’m m not sayin ng you CANNOT open sep parate accounts...jusst that therre is betterr ways to h handle multiple e funds.

All fund ds can be p placed in on ne bank acccount as lo ong as thee accountin ng system clearly d documentss income aand expensses in eachh fund aparrt from operational ccash flow. nting you w will produce e reports tthat detail expenditu ures and With fund accoun es for multtiple funds. revenue Profit oriented bu usinesses o only have o one set of aaccounts or gene eral ledger. However,, churches and nonprrofits can have more than o one general ledger de epending o on their need.

For example...you u may have e one gene eral ledger account titled "G General Fu und" which h all unrestricted fundds pass through h.

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Then you may have several more ledger accounts titled "Missions", "Building Fund", "Vacation Bible School", etc. which restricted funds pass through. These are funds that are set aside for a specific purpose.

Note: Most small churches and nonprofits use this type of basic fund accounting to monitor the activities of each fund internally. If you need to prepare financial statements for external organization such as a financial institute, you will need to check their regulations regarding their required financial statements.

Some banks require you to prepare your financial statements using the Statement of Financial Accounting Standards (SFAS) Numbers 116 and 117, which describes the way nonprofits should account for contributions, and present their financial statements.

Remember the emphasis of the SFAS financial statement reporting is on “net assets” classification, rather than tracking each fund.

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Question, Comment, and Idea Section The great thing about nonprofit or church financial administrators is they always have a heart to help people. I opened up several question and answer sections on my Free Church Accounting site, so everyone could share ideas, tips, and questions and answers with each other.

Below are some of the questions and answers, tips, and comments in the fund accounting section.

Designated Funds or Restricted Funds What's the difference between designated funds and restricted funds?

(Jan,Texas) Comments: Difference between Designated and Restricted Funds

Designated funds are monies set aside from the general fund for a specific 10

purpose. For example, your governing body could decide to set aside a certain percentage of the general fund for property improvements, these funds become designated funds.

Restricted funds are monies given, collected or donated for a specific purpose.

The big difference between designated funds and restricted funds is that the governing body can transfer designated funds back into the general funds.

Restricted funds must be used for the purpose in which they were given or raised. (vickey)

Record the Transfer of Money from Checking to Savings We needed to transfer money from our Parish Savings acct to our Parish Checking acct in order to cover some misc. bills/payroll. Is this entry just a matter of debiting the checking & crediting the savings? Or do I have to somehow show it on our Income Statement as income? (Becky from MI) Comments: Transfer of money Yes, that is all you need to do since those funds would have already been posted as donated contributions earlier. (Anonymous in NC)

Flow of Restricted Income/Expenses I'm struggling with understanding the accounting flow for a restricted giving scenario...

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Every year we have a men's retreat, where some of the expenses are covered by the church and the rest covered by participants.

So, we receive $2000 from participants designated to pay for their attendance at the retreat.

So the income is posted to the "Men's Ministry Fund Income" account and coded with restricted as the primary class and Men's Ministry as the subclass, right?

So then the total cost of the retreat is $5000. Does this entire amount get posted to the Men's Ministry Fund Expense account? Would you then transfer $3000 from the General Fund to cover the rest? What entries do you need to do to allow for the $2000 received from participants and to make sure that our budget doesn't show us spending $2000 than we budgeted? What the proper QuickBooks trail to clearly show that the $2000 given was actually used to pay what the donor designated it for?

Does all this make sense? I know there are probably five different ways to deal with a situation like this, but I'm just trying to understand how all this works together. (T Rubino) Comments: Answers for Flow of Restricted Income/Expenses I’ll try to answer your questions: So the income is posted to the "Men's Ministry Fund Income" account and coded with restricted as the primary class and Men's Ministry as the subclass, right?

That’s the way I would do it.

So then the total cost of the retreat is $5000. Does this entire amount get posted to the Men's Ministry Fund Expense account?

Yes, if you want to track all expenses related to the event.

Would you then transfer $3000 from the General Fund to cover the rest?

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That’s the way I would do it, unless we planned on covering it another way such as a fundraiser.

What entries do you need to do to allow for the $2000 received from participants and to make sure that our budget doesn't show us spending $2000 than we budgeted?

Since you are using QuickBooks, I am assuming you have an income account set up and named: Tuition, Registration Fees, etc. I would post the $2,000 to that account and assign the Men’s Ministry class to it.

What the proper QuickBooks trail to clearly show that the $2000 given was actually used to pay what the donor designated it for?

Just make sure the $2000 is assigned the Men’s Ministry class. Also make sure all expenses related to the Men’s Retreat are assigned to the Men’s Ministry class. (vickey)

JOURNAL ENTRY OF GIFT If a village received a gift of a new fire engine from a local civic group, the fair value of this fire engine was $400,000. The entry to be made in the general fund for this gift is? (Kenny Oh, CA) Comments: What to record as entry?

One would debit the asset account (Fire engine #?) and credit an equity account like (ABC Community Fire Department, Capital). (Anonymous in NC)

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Use of Benevolence Funds in a Baptist Church Our church collects a benevolence fund every Sunday. We do provide assistance to our members/non‐members.

Can these funds be utilized to help with cost within the church such as repairing the benches, bus travel to bring our members on trips or invitations to other churches, cooling system, etc?

We are not sure what Benevolence can be used for from a legal standpoint.

(Joanna, Louisiana) Comments: Benevolence Funds vs General Funds Not from an ethical view point. Monies raised for benevolence should be used strictly for benevolence. See this page for more on Benevolence Policy Guidelines.

Church maintenance such as repairing the benches or the cooling system should come out of your general fund. So should the expense of bus travel to take members on trips or invitations to other churches.

As far as the legal stand point...see this article on Access to Church Records by Nonmembers.

A couple sued a church because they did not think their donation to a restricted fund was being used for that fund's purpose. The church eventually won, but not till after a lengthy court battle.

In this day and age it pays to have everything “above board” when it comes to church matters. (vickey)

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QuickBooks Nonprofit Clarification We have purchased 2012 QuickBooks Nonprofit.

The language is so different for us to know how to begin using it. Why doesn't it use words that are associated with church business rather than just plain business, such as offering, tithes, etc?

It does not explain what's what's. Can anyone use plain language in stating to me where things go, other than calling contributors customers? (Midge, Iowa) Comments: QuickBooks for Nonprofits I recommend getting "Running QuickBooks in Nonprofits" by Kathy Ivens.

However I would also recommend that you do NOT do the download for UCOA accounts from page 41, this did not work for me and I had to start over.

I started as the church bookkeeper in Jan of this year and I am only now (Mar) starting to feel comfortable with the program. I still am learning but without this book I would be lost.

Also if you Google specific questions you will find lots of advice.

I have set up our bank checking account as sub accounts of: General (unrestricted) Funds and Designated (temporary restricted) Funds.

The designated fund account has many sub accounts which function as "in‐out" and when I do a report of classes it gives how much is in each that needs to be given.

I highly recommend using the classes for showing your council what is in the designated areas.

When doing sales receipts make sure you get the check numbers of those who have given by check so you can give them in the end of year report to whom they pertain to. I also edited the sales receipt so that it is specific to our church.

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Hope this helps, Prayers! (Sandra)

Depreciation I am currently working with a bookkeeper who is helping us to change to QuickBooks Non‐Profit.

Our board is wondering why we are depreciating the assets when we are a non‐ profit and don't claim it on a tax return as well as if we need to depreciate at all or if we can expense the item straight away.

Your help and any links to requirements in this area would be great. Also, if we are required to depreciate, where would I find out the best methodology to do so? Does QuickBooks do this for you? ( StateSide, Colorado) Comments: Depreciation for Churches I agree with your board. I don't think a small church would need to figure depreciation...unless your financial institution required you to prepare your financial statements using Generally Accepted Accounting Principles (GAAP).

I found a couple of good articles for this subject: Nonprofit Law/Nonprofit depreciation and Churches Recording Depreciation (vickey)

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Fund Accounting Are churches still required to use fund accounting? If not, where does it state that, so I can print a copy for my records? ( StateSide, Colorado) Comments: SFAS Numbers 116 and 117 The Financial Accounting Standards Board (FASB) issued the Statement of Financial Accounting Standards (SFAS) Numbers 116 and 117, which describes the way nonprofits should account for contributions, and present their financial statements.

The emphasis of the SFAS financial statement reporting is on “net assets” classification, rather than tracking each fund.

However, many small churches still use fund accounting for their financial statements.

Note: Some banks require submitted financial statements to be prepared according to the Statement of Financial Accounting Standards (SFAS). Check with your financial institution for their requirements. (vickey)

Fund Accounting in QuickBooks Pro? I am using QuickBooks Pro 2011. I do not have the one for non‐profits. My question is can I set up fund accounting in QuickBooks Pro? If so, can someone give me the general idea as to how? (Jackie, AK ) Comments: Fund Accounting in QuickBooks I think the easiest way is to use class tracking.

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To set up QuickBooks for class tracking...

Go to Edit, Preferences, on left side of window‐‐click Accounting‐‐click Company tab.

Click little boxes next to “use class tracking” and “prompt to assign classes”.

Now go to List, Class List‐‐in little window‐‐click on classes and then New. Set up your classes. Some people set up 3 classes: Unrestricted, Temporary Restricted, and Permanently Restricted. Then set up individual funds as subclasses under one of the 3 classes.

Others just set it up for regular fund accounting and set up classes such as: General, Missions, Building, Youth, Etc. Whenever you enter a transaction you will be need to assign a class to it.

Then you can run a Profit and Loss by Class Report which will detail your income and expenses by fund. (vickey)

Closing Books Giving has been down this year for our church and expenses are up, it is looking more and more like we will be over budget at the end of the year.

Since I have been here, we have always come in under budget and we move the excess money or spend the excess money and have a zero balance before closing the books.

What happens when we have a negative balance, do i still just run the year end closing procedures which zeroes out all the accounts?

Comments:

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Closing at Year End Our church has the same situation and, yes, we will run the year end closing as we have in the past.

I use QuickBooks for our church accounting and the system will automatically close all "actual" income and expenses to the retained earnings account which I am currently predicting will drop by about $12,000 which is my estimate of actual budgeted expenses over actual income from regular offerings.

Hoping that 2011 will see this trend reversed. Thank the Good Lord for reserves from prior years' operations. (Marcus in Texas)

Contributions to Restricted Funds I am confused about recording contributions to, for example, the building fund.

How does the contribution get recorded as income on the Statement of Activities?

I see in your book that you would debit cash and credit the temporarily restricted account, but I don't know how to get that amount reflected in income.

Comments: Income Sub-Accounts You can set up an income sub‐account of the appropriate fund and credit it. (vickey)

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PASS THRU FUNDS We currently collect money as a church on a monthly basis for a benevolent nonprofit organization and mail the checks made out to that organization directly to the organization, the cash we deposit into our account and write out a check for that amount.

Can we set up a liability account and deposit the money into our account and pass this through without recording a liability. The only problem is that it seems that we would be responsible for sending out donation statements for those that give over $250.00. Is this correct?

How would you handle this type of transaction? (Carol, FL) Comments: Funds in Transit Churches often receive funds destined for another organization. We handled those by categorizing them as "Funds in transit".

That fund received monies not belonging to the church and each month (or other appropriate interval), I disbursed those funds to the designated organization which cleared the "Funds in transit" to zero. In fact, any funds received which were not readily identifiable as belonging to another fund were initially deposited to "Funds in transit" and journaled out if/when we were able to identify the correct church fund to receive them. (Glenn)

When to Use a Double Accounting System Is there a budget threshold that triggers a requirement to use double entry system? Our expense budget is about $370,000 annually. (PA) Comment:

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Double Entry Bookkeeping There is not a budget threshold; however, if your organization has very many assets and liabilities to track a double entry accounting system would be a better option.

See this page on basic accounting for the difference between single entry and double entry bookkeeping.

I believe with an annual budget as large as yours, I would definitely recommend checking into a good double entry accounting system.

Building Interest Expense Should the interest expense on a new building be paid and accounted for in the general budget or should money be borrowed from the credit line to pay the interest?

Comments: Borrowing to Pay Interest I would suggest that borrowing "new" money to pay interest on "old" borrowed money is generally not a very good idea unless the interest rate to be paid on the "new" borrowed money is considerably less than interest being earned on the money that would be used to pay the interest on the "old" borrowed money.

Sounds like some kind of riddle, but it isn't a riddle. (Marcus in Texas)

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Fund Accounting I need a sample financial statement showing how restricted accounts such as building fund, benevolent funds etc are handled on the balance sheet and income statement. (Keith, NC) Comments: Examples of Church Financial Statements You can put the phrase "income statement example for a church" in a search and find several examples.

P.S. My ebook "Basic Church Accounting" has examples and explanations for church financial statements :‐) (vickey)

Church Groups and Accounting Practices I just need some straightforward advice. I am a member of a small church. For decades each group (ladies auxiliary, men’s club, youth group, stitchers, etc) have had their own bank accounts and handled their own finances, all while using the churches id number on these accounts.

It has come to my attention that while these groups take in contributions and do fundraisers, that the accounting for these funds is never reconciled with the church and never included on church financial statements or reported to the IRS. It seems to me that if individuals who donate to these different missions were to claim a deduction on their personal taxes, but the churches reporting is different that this could lead to serious complications.

I guess my question is this‐is the church responsible for reporting this money? It seems to me that regardless of how we operate internally that all financial operation of the church needs to be reconciled at the end of the year. (Brett, Missouri) 22

Comments: Internal Controls Your right, Brett, everything should flow the church records. I would also be concerned with internal controls not being in place with each group having their own bank accounts and handling their own finances. (vickey) Nothing Separate There should be no separate ministry bank accounts. Various ministries and events can be given credit for raising money, but the money itself should be recorded on the churches books.

Some ministries get territorial and pile up huge amounts of money from dues and other things. They often end up spending that money on things that have nothing to do with ministry.

If the CHURCH, wants to keep the money available for the individual ministry to use throughout the year, that’s fine, but the ministry should go through the church to get that money. (KJ)

Mortgage Payment Transaction What is the proper way to post a church mortgage payment to the ledger?

I know that the standard procedure in for‐profit accounting is NOT expense the principal portion, but rather to increase the equity account and decrease the mortgage liability account.

However, a church accountant told me that this is not the case with fund accounting, and that the entire payment should be expensed and then a separate journal entry to reduce the mortgage and increase the equity. I would prefer the second option, but our bookkeeper insists on the first.

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The problem with the first option is that our income vs. expenditure and our budget reports are skewed because they don't include the entire mortgage payment. Can someone help me and explain WHY?

Comments:

Fund Accounting for Mortgage Payment

I have been working with a CPA (the former Business Manager) and we recently booked a Mortgage Payment.

It's a two part entry:

Part 1: dr. Mortgage Expense cr. Cash This recognizes the cash expenditure. It uses the total payment to recognize interest expense. If you wanted to separate the interest portion in this part, it would work.

Part 2: dr. Mortgage Pay. (Principal) cr. Property Fund (Principal) This adjusts the fund and the liability for the Principal portion of the payment.

If doing it this way skews your budget ‐ I would submit to you that your budget should probably be adjusted. Your budget should always be set‐up to take into effect how the accounting is being done. Otherwise, you will lose the connection between Budget and Actual.

When this happens your Budget process loses its ability to guide your financial decisions. I hope this helps, God Bless You! (Lucas H) 24

What is the "Property Fund” account?

What type of an account is "Property Fund ‐ principal"? That can't be an Asset account, like a building.

Thanks! (Anonymous) Property Fund Account A "Fund" Acct is usually what is referred to in profit accounting as an equity account. (Lucas H)

Presentation of Building Fund Bank Account Building Fund is a specific fund to be used for acquisition or construction building that will mainly be used for education purpose. While accumulating this Building Fund, we are not allowed to use it for other purpose.

On the Balance Sheet, should we present Building Fund bank account in Current Assets (after Cash in Bank) or in Investment section? (Tony, Sydney, Australia)

Comments: Building Fund Account Treatment Establishing the account should be a debit to an asset (Savings Acct ‐ Building) and a credit to the Net Asset or Equity Acct (Building Fund).

I believe the Contributions should be brought into a revenue acct (Building Fund Contributions) that is tied to the Net Asset (Building Fund). If you have a Fund Accounting system ‐ it should close that revenue account into the associated Net Asset (Building Fund) when you close the year.

When you start making purchases related to the new building they can go into expense account(s) that are tied to the Net Asset acct. These will be closed 25

annually into the Building Fund.

With this treatment the Fund Balance plus any contributions in the revenue acct, minus any expenses for the year will equal what remains in the Fund. If you are using a Fund Accounting System and these accounts are set up correctly, you should be able to pull a P&L for that Fund and see what the current balance is.

I hope this helps! (Lucas H)

Capital Expenses

Is a new roof for a parsonage considered a capital expense for a church?

(Joann, IL)

Comments: Capital Improvement According to the Business Dictionary, a capital improvement is an addition or structure that enhances the value of a property, or a replacement or upgrade that extends the useful life of an asset.

So I would consider a new roof a capital expense. (vickey) Who Owns the Parsonage?

Disclaimer: I am an Engineer not an Accountant, but I am also currently my churches Treasurer.

In my opinion, if the Church holds the deed to the Parsonage, then any major repairs (like a roof) would be considered capital.

My reading of other accounting literature does not like the term 'Capital', because it is vague in nature. The term 'Fixed Assets' seems to be more acceptable.

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Hope this helps. God Bless (D White)

Risk of Church Losing Tax Exempt Status?

Many years ago, I kept the accounting records (books) for about 25 small businesses, each one with a very different product or service.

A clear reality that I learned from that experience and have never forgotten was the number one risk of failure for a business, large or small. Some may say poor decisions regarding financing, or overextending the business and other reasons can cause a business to fail.

These and other reasons are valid. But I still maintain, especially after having worked 38 years in the accounting profession, that the highest risk is the absence of approved written internal controls. Why do most audit programs have review of internal controls as the first step?

Now in my part time position as the bookkeeper for a local church, I am again seeing the matter of internal controls being at the center of not so much the failure of the church like a business would fail, but the risk of losing their tax exempt status.

Very much like the owners of the small business which I serviced, the people in the church are good people and I am convinced have no intent of knowingly doing something to lose their tax exempt status.

The church has a number of designated funds that are reported on the balance sheet. A number of the funds represent small groups or Sunday school classes.

The church receives contributions that are designated to the small groups or funds and over time the balance in these accounts can grow to large amounts.

Recently a check request was received from one of these small groups to withdraw $3,000 from "their" fund. The check was to be made out to the name of the small group which is the same name of the fund listed on the balance sheet.

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Not until after the check request was approved did I begin to have concerns and questions. The basis of my first concern was that the contributions made by the individuals that makes up the $3,000 was done so with the intent to take a tax deduction on their income tax return since their contribution was being made to a 501(c) (3) non‐profit organization, a church but now those funds were being moved to an entity outside the church.

After the funds are moved out of the churches bank account, the church no longer has control over how the funds will be spent. How do internal controls fit this situation? If the church has written approved policies and procedures that addresses and explains this transfer, steps for oversight and follow‐up and audit, there may be a basis to make the transfer. But no written approved policies and procedures exist.

My second concern was how did the small group endorse the check? When the check cleared the bank, I got a copy of the front and back of the check from the bank website and my concerns deepened.

Included in the endorsement was not only the name of the small group but the name of the church was part of their endorsement, in other words, the small group was holding themselves out not only as a group of people commonly bound but connected to the church.

How do internal controls fit this situation? To‐date I am not aware nor found that the church has any written approved policies and procedures for opening bank accounts by the church or small groups in the name of the church.

My recent experience with opening new business accounts with banks, regardless for profit or not for profit organizations, is very involved. So how and on what basis did the bank open the account for this small group without officially contacting the church and requesting official signatures from the church treasurer and other church officials?

Where is the risk in losing tax exempt status?

Not maintaining necessary internal controls, protection (safe keeping) of 28

contributions and controls of oversight of disbursements of contributions, resulting in tax deductible contributions ending up in an entity that is not tax exempt.

As stated earlier, I don’t believe any of the individuals in the small groups purposefully intend to violate any principal or law by their request for the funds to be transferred to their account.

What is, however, very clear is the appearance of wrong doing. To an outsider, whoever that person may be, this is a picture of the "old shell game".

Contributions are funneled into an exempt organization for tax deduction purposes and then moved out at a later date for purposes other than the mission of the not for profit organization, in other words tax fraud.

If the decision were mine to make about these matters, I would first ask the question, why is it necessary to move the money outside the church when the church has all the means (accounting system, etc.) to receive and disburse the funds?

Regardless of the answer, I would require all small group bank accounts to be closed and monies returned to the church. Why would I do this regardless of the answer, because there is not an acceptable answer to move money outside of the charitable organization who received the contributions in the first place. (Phil Collins, Houston, Texas)

Comments: Church Groups and Separate Checking Accounts I am the recording secretary for our church. I happen to agree with you about the groups having outside checking accounts being a "no‐no".

If the groups are using the church's tax number to purchase items and not running the purchases through the church accounting system, they are in violation of the law.

If they have their own checking account they should have their own tax number.

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Often groups think they can use the church's tax number simple because they are associated with the church and that is not so.

I have to agree with the fact that if the church is collecting that money for a dedicated fund, the church should have control to the fact the money is spent for that reason it was put in there.

If an IRS audit was to happen, I believe the red flags would be flying pretty high.

You may need to address your concerns with a CPA about your situation and take them to your council as well.

Sometimes it is best to have your information well in hand when addressing these situations as people tend to get a little defensive when these issues are addressed. (Kathy) Small Group Funds When I came to be the Finance Secretary, we closed all small group bank accounts and transferred the funds to designated funds with the title of the class.

All deposits into these funds are entered as non deductible contributions. We make it known that if an individual would like to make a tax deductible donation it would have to be made to an account that the church controls the distribution of funds.

By entering them as non deductible contributions, they are allowed to spend the money however they see fit. We however will not allow a check to be written to an individual without paid receipts as documentation. (Rebecca)

Single-Entry Accounting and General Ledger for a Small Church I am an auditor for our small church, and I uncovered questionable spending practices by the now former Treasurer who is not forthcoming with records which 30

were done online.

We can access a limited time period of single‐entry accounting, but we are blocked from the past 3 years because earlier records were done in different software.

He won't respond to requests for the username & admin password. Shouldn't I be going after a General Ledger too?

He seems to have moved Designated Funds to Operational without a valid reason but I feel like I'm chasing rabbit trails.

We are hiring a non‐profit tax attorney to advise and to remedy potential IRS problems before they happen. Due to late withholding filings (on FT's part) we are red‐flagged.

The church has already given the former treasurer a demand letter for all records.

We have pieces of information but not everything.

Would a General Ledger normally always be used, or do some churches use simple single‐entry in place of it?

I am not a trained bookkeeper...obviously (Anonymous)

Comments: Single Entry Bookkeeping

It is very wise on your part to hire a nonprofit tax attorney now. He should be able to advise you on several of your issues.

With single entry bookkeeping you do not actually keep a general ledger and journals like you do with double entry bookkeeping. You essentially just use a list 31

with a column for expenses and another for income.

See this basic accounting page for more on the difference between the 2 bookkeeping systems.

Did anyone else enter the church’s financial transactions or was it all done all by one person? If someone else entered the transactions while he was on vacation or something similar…would they have a username and password? Note: If a staff member never goes on vacation or allows anyone else to enter the church’s transaction...it should throw up a red flag.

I know this is kind of like shutting the barn door after the horse has already got out...but for other readers here...never...never permit just one person have access to the church’s financial transactions.

See this page for internal controls you can implement in your church.

You might try contacting the online company and explain the situation and see if you can get the username and password reset. (vickey)

Legal Question about Fund Accounting Is it illegal for a church to use money from another fund temporarily?

For example, our church's general fund is out of money, but we still have money in our checking account. So instead of not spending, I am paying the bills and showing a negative number for the general fund balance.

Someone told us that this was a criminal offense.

Comments:

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A Criminal Offense!!!!!!!! Hardly, but...........

I certainly do not believe this type of borrowing (from Peter to pay Paul ???) would rise to the level of a criminal offense. If so, I would like to see the law that is broken.

However, as our church treasurer, I would not do this without first having received the support (by a vote) of the members of the church's stewardship/finance committee and perhaps even the support (by a vote) of the board of deacons.

I would not do such borrowing unilaterally since the problem is a "church" problem and should not become a "personal" problem of the church treasurer or business administrator. Sounds like someone may need to put the brakes on spending, too........( Marcus in Texas) How does God feel about Borrowing?

This is a thorny issue to say the least. I understand this to be illegal unless certain guidelines are followed. I have walked this road before and left a congregation because of it.

Consider that your congregation accepted the restricted funds with the stipulations the donor required (this may be implied by writing Building Fund in the memo.) You accepted those restrictions when you took his money. You gave your word to him and God that the money would be used as specified.

We are stewards of the assets both physical (money, land,...) and non‐physical (your word/trust with the donor.) When you use the money for other than its intended purpose you are breaking your word with the donor and with God. Recall the parable of the servant who was entrusted with the master's money.

Aren't we in charge of our Master's money? Satan will tell us this is the only way out and that God won't provide or God won't mind.

From what I recall a loan may be made from a restricted fund to another fund (in this case the General Fund.) A loan agreement must be drawn up stipulating the repayment times and signed. Also interest must be paid or it is not a loan (this is what makes it a loan and is a legal requirement.)

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The lowest amount of interest I personally am comfortable with is 20%. God stipulated that when Holy things were misused in the tabernacle/temple that they were to be restored with their fifth (20%). It also makes you less likely to look at this as an easy out. It is sort of like the overdraft fees your bank charges you.

They grab your attention.

Prior to a congregation taking this option time should be spent in prayer by both the congregation and the Board/Leadership asking what God wants them to do.

Have other options been considered to cut back on expenses? Is the Board looking at the monthly financial reports? Didn't they see what was happening?

Are there other avenues to offset this shortage e.g. car wash, selling BBQ plates (chicken is cheap when you buy it in bulk and have members cook beans and potato salad.)

I believe we should have faith in God providing what we need (not what we want.) The Bible speaks a lot about borrowing because you are making yourself a slave to the lender and we should only be slaves to our one true Master.

I left a congregation over this. A woman had left a LARGE sum of money to the church's benevolence fund because of how they had ministered to her son during his battle with cancer. They wanted a new building and went and got the financing for it. A few years later there was a downturn in donations and they started borrowing from that fund.

I spent much time with the minister who previously had worked for an accounting firm and knew the laws. In the end he wanted to be paid and turned his back on what was the right thing to do. (I left at that time because he wasn't following what was right.) Eventually the benevolence fund was drained but they had lots of promises to pay it back and eventually even the promises were forgotten.

Satan is very good at chiseling away at our faith and finances are an easy way to do it. Don't give him any quarter.

Personally I don't believe a church should ever borrow money and I see it as a lack of faith that God will provide or not following His direction. I serve a congregation that practices this. We were busting at the seams but didn't have the funds yet for a building and are still renting. We prayed to God about needing room and a tenant moved out right next to us. The landlord asked if we wanted to expand 34

and lowered the square footage rate we were paying. Two years later we are cramped again. We went looking and could not find a better deal then what we had. Guess what happened. Another tenant moved out and once again we doubled our capacity. Our building fund is still growing and God is providing what we need WHEN we need it. It will be beautiful when we move into our own building that will be fully paid for.

I will be praying for your leaders and congregation to witness how God cares for his children and provides when it is time.

BTW, this type of thing often goes unnoticed unless your State government starts looking. This is usually triggered by complaints from your donors. Do you want the state to take control of your church's finances?

(Sorry for the sermonette but I am passionate about trusting that God WILL provide.) (Russell Montgomery)

Restricted / Unrestricted You said you're taking money from the "checking" account. I believe your only suppose to NOT touch a restricted account.

Meaning, if you have people contributing to a building fund account, that money can only be used for the building fund, not operating expenses.

Money in a "checking" account sounds like an unrestricted account. Has the "checking" account been set up for a particular purpose or cause? If it hasn't you're free to use it as you wish.  Unrestricted: These funds are free from any external restrictions and available for general use. Many individual contributions are unrestricted, as are general operating and unrestricted grants.

• Temporarily Restricted: These funds have donor‐imposed restrictions that can be fulfilled in one of two ways – passage of a defined period of time (time restriction) or by performing defined activities (purpose restriction).

These funds most often come from a grant received to operate a specific 35

program or project or individual contributions given with the intent of supporting a particular program or campaign.

• Permanently Restricted: These funds are restricted by the donor for a designated purpose or time restriction that will never expire. The intent is that the principle balance of the contribution will remain as an investment forever, and the nonprofit will utilize the interest and investment returns, such as with an endowment. (KJ)

Temporary borrowing is permissible if...

Firstly, only general fund emergencies, such as not being able to pay salaries and utilities, can justify temporary borrowing from restricted funds; secondly, this should be allowed by existing financial policies of the church; thirdly, the repayment is a calculated certainty such as anticipating collections from the Sunday service sufficient to cover the temporary borrowing.

If such emergencies frequently recur; however, it indicates serious budget problems of the church which should be addressed immediately. (Marvel K. Tan) Borrowing from Designated Funds According to a CPA who handles the books of an Episcopal Diocese, it is permissible to borrow from designated funds. For reasons unknown to me, he said not to charge yourself interest.

However, beware of borrowing from a fund composed of bequeathed money.

That could violate law and IRS non‐profit status, depending on the situation.

From our experiences, I do recommend getting permission from your governing body, and even from your congregation. (Treasurer, Episcopal Church) Running in the Red in a Fund This is a very interesting thread and everyone that has contributed to it has some great points! So I have to insert my two cents in too :‐) 36

Marcus is right. It is not a criminal offense to “borrow from one fund” to pay expenses in another. I would even dare say that a majority of churches, especially small ones, have at one time or another “robbed Peter to pay Paul”.

A majority of churches, especially small ones, have only one checking account in which multiple funds (restricted and unrestricted) are operated from. That is why it is so important to keep accurate fund accounting records.

As Marcus stated, I would not on my own accord proceed to pay expenses in a fund that was in the red. When you see that there are not going to be enough funds in say the general fund to meet for example salary or rent for the month, you should definitely get hold of someone in charge and let them follow the hopefully written procedures on what to do in that situation.

I agree with Russell too in that it may not be the ethical thing to do. As you stated, maybe a fundraiser would help pull an operating budget out of the red. And as someone who just went through a terrible battle with cancer…it would hurt me very much to find out that the money I gave to help other people in need was not used for that purpose.

I think charging interest on “borrowing” from another fund would be a hardship on some struggling churches and is not a legal requirement, but would definitely make you think twice before doing it :‐) As Marvel stated, most churches that face this situation are able to get “back in the black” very quickly by the next offering collection. If they do continue to run in the red then it is definitely time to reevaluate your budget and spending. I really like the questions Russell wrote: <i>Have other options been considered to cut back on expenses? Is the Board looking at the monthly financial reports? Didn't they see what was happening?

Are there other avenues to offset this shortage e.g. car wash, selling BBQ plates.</i> To the Treasurer from the Episcopal Church: excellent post!

I would like to thank each and every one of you that take time out of your busy schedules to help others trying to do their best in their work for God.

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Accounting for Gifts Our church was given two cemetery plots worth, at the time, $2,500. Do we carry these on the books at $2,500 or do we find out what the value is today and adjust it accordingly? These may be sold or used for persons who have no money to bury their loved ones. (Delores, FL) Comments: Value of Cemetery Plots What is the basis for the value placed on the cemetery plots?

It would seem that the correct way to record them would be to find out what comparable plots in the same cemetery were selling for on the day ownership changed hands and the church officially owned them, and that should be their value on the church's books. (Marcus in Texas)

Fund Accounting through Quick Books?

I recently took over a part time treasurer position at our church. The previous treasurer has used Quick Books for most of the accounting but keeps a separate file for the "fund" totals.

Has anyone used Quick books to track the designated funds? They don't have an account name of "funds", just the standard income, expense, asset, liability.

Would it be best just to designate the funds as "other asset" and track them that way? (De, Ohio)

Comments: 38

Class tracking in QuickBooks

I would recommend setting up each fund as a class. With class tracking, you simply enter the expense or revenue and assign a class (fund) to it.

See this post for instructions how to turn on class tracking.

Class tracking is the easiest way to "keep a separate file for each fund". You can run a Profit and Loss by Class report to obtain your balances. However, your balance sheet will only show one equity account. See this post for information on fixing that issue. (Vickey)

Journal Entry for Building I am doing a church's accounting. It is non‐profit and fund accounting.

The Building is completely paid off but is not on the balance sheet for what it is worth. We need to put it on the balance sheet and are not sure what to balance it with.

What would the journal entry look like to place the building onto the balance sheet? (Jon, Columbus, OH)

Comments: Journal Entry Usually when a capital item is purchased the debit is to a fixed asset account in this case Buildings and Improvement Account and either a credit to cash if you are paying cash or a Note Payable to say a bank if you are financing the fixed asset.

In this case as the building is paid off the only thing you can credit would be the Capital Account. Usually when the Income Statement is closed at the end of the 39

year the profit or loss is automatically posted to this Capital Account which is known as Retained Earnings. I would establish a separate capital account called "Capital Property Contributions" or something like that and put the credit there.

As for the amount; you could use the latest property assessment which you can usually find online for that county. Churches are usually exempt from property taxes, but if you get a statement you can use that value as your basis. (Pete)

Including Asset Values

Exactly what I did.

In the Capital Accounts, I opened a new account called Prior Period Capital contributions. This collected the value per assessment notices of the church, the parsonage, and the investment funds not shown on a balance sheet.

In fact, no balance sheet as such was ever published or kept ‐ just an Income statement. Some balance sheet items had been reported as small reports in the Annual Reports, but almost as an afterthought rather than a Financial Report.

Building values were not reported anywhere, and some shares had split and almost doubled in value without being accounted for. Only way to update was to put this into Capital. Just remember at year end to close this one year account by absorbing into the overall RETAINED EARNINGS account. (Anonymous)

Building Fund Can utilities be paid out of the building fund account? (Anonymous) Comments: Paying the Utility Bill

As church treasurer at our small South Texas church, I would not pay the utility

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bills from the Building Fund without first obtaining permission from the Stewardship/Finance Committee and maybe even the Deacons.

In fact, our Building Fund is one of the four separate bank accounts that we have, so those funds (meager as they are) are not even being co‐mingled with regular operating funds in the bank.

To pay the utility bill from the Building Fund would require gaining permission to transfer the funds from the Building Fund bank account to the general operating bank account, but only after gaining permission to do so. (Marcus in Texas)

CD Interest 80 years ago someone gave our church a monetary gift that was to be invested and the interest used to help pay the pastor's salary.

Over the years the church has deposited that interest in the general fund. The donation at the time was a substantial for that time period, not so much now. The money is in a CD now and the interest is not that great because the amount is not that great.

The details of the gift were handed down from pastor to pastor and the former treasurer wrote a memo with the instructions. However, we had a fire that destroyed part of our church and a lot of records and we no longer know exactly what the memo said.

What I wanted to know is, since the interest is not very much, and the money is in a CD, and we don't really need it at this time for the pastor's salary, if it would be acceptable to leave the interest in the CD and let it roll over.

That would help the CD grow in case we ever did need it to help with the pastor's salary. If we did this, how would we record it?

Again, we don't know all the details of the initial gift, in fact we don't know who even gave it. (Kathy, IL)

Comments: 41

Investing Temporarily Idle Cash A very good question.

My suggestion is that the person submitting this question contacts a company like GuideStone Financial Resources of the Southern Baptist Convention to obtain some advice.

Since this organization specializes in retirement plans for pastors and other church employees, including IRA's they may also have dealt with questions of this type previously.

I don't know what type of investments churches can make, but GuideStone should know. They may have something or know of something that could beat what CDs are currently paying........ (Marcus in Texas)

Separation of Duties Should the same person sign checks and count the money? (Anonymous) Comments: Internal Controls No, the person signing checks should not be the same person who counts the money. Also, the one signing the checks should not be the one reconciling the bank statement.

See this page for more on separation of duties.

Signing Checks In addition to having at least two people count the money and prepare the bank deposits, we also require two signatures on every check that is written on the church's bank account. (Marcus in Texas) 42

Management Overriding Controls I work part time as the bookkeeper for a church reporting to the senior pastor. I am a retired accountant having spent 38 years in aerospace accounting. Please bear with me while I provide the needed background / contextual information for my question.

The church uses QuickBooks and fund accounting with approximately 35 funds on the balance sheet. The church has two bank accounts, operating and designated.

Undesignated contributions are deposited in the operating bank account, designated contributions to the designated bank account.

ALL monies received are counted by volunteer 'teller counters' on Sundays and recorded on either the operating count sheet or the designated count sheet. The tellers deposit all cash on Sunday at the bank night depository box. The endorsement stamp is placed by the tellers on all checks, a stamp for operating and a stamp for designated.

The checks remain in the church and are copied on Monday morning and deposited. I enter the data from the teller's count worksheets into a similar Excel worksheet to verify the math / totals of the teller worksheets and to facilitate the grouping/identification/posting to the appropriate QB accounts.

From time to time a donor will write a check indicating on the check but sometimes with a sticky note attached to the check that $ are for operating and $ are for designated. This creates an immediate problem for the teller counters in not knowing on which count sheet to record the check, operating or designated.

Either choice will not be correct.

Once I get the checks, I can't split up, i.e. between operating and designated accounts, the check including funds for both operating and designated. So the check is deposited in either the operating or the designated and a transfer is made online between the bank accounts in order to have the check amount in the correct account. The transactions (all recorded in the AJE folder) needed to complete the correction are 3: (1) transfer between online bank accounts; (2)QB: 43

record transfer between bank accounts; (3) AJE to record the distribution of the transfer and this can only be done if I am given reliable information to do so.

Closer to my question. The senior pastor has clearly indicated that if she is approached by a member who is wanting to write a check and then decides to add an amount for a memorial, the pastor will not ask the member to write separate checks but will tell the donor that "we her staff or 'me' will fix it." I openly disagreed with the pastor by her remarks, by throwing the fix back to me and increasing my workload by unnecessary 'fix it' steps.

Furthermore, I told the senior pastor making regular transfers between cash accounts will also raise red flags during an audit. My words did not impact her position at all. In my opinion she is deliberately managing overriding controls.

(Phil, TX)

Comments: Writing Separate Checks

Wow Phil. I am not sure what to say. 35 funds??? You do have your hands full!

Okay, I can see both sides of this dilemma. I have constantly stated that churches and pastors need to make their accounting as simple as possible for their volunteers and staff. It is very hard to find someone willing to take on the responsibility of taking care of the church’s finances, so if you find a good one you should do everything in your power to keep them.

However, I can see your pastor’s side too. It is very difficult to ask your donors to write out two or three different checks.

We have people do that all the time, but we only have one bank account and the distinction is all done in the recording. So I have no easy solution for you.

I do believe that if your donors realized how difficult they were making it on the church staff...most would gladly write out the separate checks. Maybe your pastor could make an announcement to that effect...you know...not make it a requirement but a request and then if some still wanted to put it on one check they could...but most would probably do as requested.

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Treasurers Dilemma

As Treasurer of my church I have taken the necessary steps to form a close bond and respectful relationship with my pastor. Because I present the pastor and board with timely and accurate accounting information and am not afraid to speak my mind; I am able to convince my pastor of necessary changes which have some common sense about them. Most of the time he will defer to my expertise.

First off 35 funds is ridiculous unless your Joel Osteen's Church.

Second if the church has a board of directors and they have spines perhaps bringing accounting problems before the board and asking for a vote on various provisions, overriding the pastor may be in order if your relationship is already cool.

Third if this is getting to be too much to bear consider getting additional help or resign, stating your reasons. (Pete)

Build Healthy Relationships without Compromise Thanks for your comments Pete. You have touched on a number of key areas and provided beneficial insight at the same time.

Healthy relationships in these situations are important especially since most all individuals involved do not have the accounting knowledge/experience and need to be able to trust the bookkeeper/treasurer.

I came into this position with a lot of “back work” to catch up which is not that unusual with the smaller organizations and particularly the not for profit types.

I have been able to clean up the back work, and as you do, I provide timely and accurate reports to the finance committee. In fact, they are getting more ‘useful’ reports than before. I have gained the respect and I believe trust with the finance committee and 99% of the senior pastor.

She commented to me that she sees more calmness, less anxiety among the staff and finance committee since I have come on board. I consider this is due not so much with me but establishing and following principles through the accounting 45

process. She will defer to me unless it crosses with one of her set opinions. What puzzles me and I would like to ask the question (but it is not my role to do so), ‘how does she find time to prepare and fulfill her pastoral responsibilities while she is spending so much time micro‐managing the office staff?”

Even though I have worked over 40 years in accounting, I am still very much a self starter and will get the job done whether my manger is around or not. I thank you and concur with your suggestions. (Phil) Another Example Needing a Solution This is about another example of management overriding accounting controls.

The reason for sharing this example is not to build a stronger case about weaknesses of church management but rather to see if there are others who experience the same and may have some ideas to resolve the issue.

The starting point of this example is that the senior pastor basically prepared the 2010 annual budget herself, with some requested input from me the bookkeeper.

In doing so, she combined both the interest and principle amounts of the debt service on the church mortgage as debt retirement expense.

The budget was reviewed by the finance committee and approved by the church council. I was never asked to review the budget. Now in 2010 as payments are made to the mortgage company, I record the interest portion of the payment to the debt retirement expense (income statement) and the principal to the liability or note payable (balance sheet account).

This recording is basic 101 accounting. However, the effect is going to be an under run for the debt retirement expense because the principal was budgeted as an expense but will be posted to the note payable account.

She is quite upset about this and the "false under run condition" that will appear on the income statement. But she is experiencing the consequence of trying to doing an accountant's job when she is not an accountant.

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She is good with numbers and sharp in analysis but totally void of accounting theory which is needed whether the organization is a not‐for‐profit church or mega oil company. She now wants me to make some kind of entry each month to offset the under run. I have told her it cannot be done and not violate generally accepted accounting principles at the same time.

I told her I can add a note to the financial statements but it does not appear that will satisfy her. She is determined not to show the under run. If the note/mortgage payable is not reduced each month, then the balance sheet will not be fairly presented. The drama continues. (Phil)

Restricted Accounts I have been using Quicken 2009 and recently (June 2010) switched to QuickBooks Pro 2010 so we could do payroll ourselves. This is an accounting nightmare for me as church financial secretary because I do not have accounting education.

Our Budget was set up with expenses for principle and interest separate. Now QuickBooks shows principle under "Liabilities" and we are wondering if we can still do as original budget was set up.

As far as your first comment on splitting checks for various accounts, do you use tithe envelopes? We have members use 1 check and use the tithe envelope to separate tithe (General Fund), Faith Promise Missions, and then Other (Restricted Accounts). All money is deposited into the General Fund and then transferred to Mission, Restricted and Payroll accounts. The Restricted Account uses "classes" to separate various restricted funds rather than individual checking accounts.

We do one General Account entry per deposit slip and have not been entering individual check numbers by members. Is that necessary?

We are still trying to work on various ways of doing reports to look as simple as Quicken's reports, but haven't mastered that yet. (Carla)

Budgeting for Principal and Interest Sounds like your situation, i.e. budgeting for principal and interest, is very much like the budget I was given to monitor and report against (the budget was mostly 47

prepared without my input) for 2010.

Our church has a monthly mortgage note and the 2010 budgeted monthly disbursement included both principal and interest? This was not the way it should be done but I was not asked for my input even though I am the church bookkeeper with 38+ years in my profession.

Your QuickBooks is doing the correct entry by recording the principal as a liability.

When a payment is made for an example $200 that includes interest of $175 and principal $25, the entry is debit to expense $175 (increases expense), debit to liability account $25 (decreases the liability) and credit to cash $200 (decreases cash.

This is what I have done to compensate our reporting in 2010 with the principal amount being in the budget but the actual principal payment being correctly recorded in the liability: Total Expense 50,596.49 Net Income before mortgage payment 3,067.21

Principal payment on mortgage note 1,949.26

Net Income including mortgage payment 1,117.95

Because the budgeted principal portion of the payment is not being reduced in QuickBooks, (I export all the monthly financial reports to Excel where I can do some minor formatting) I add the last 3 lines (see above example) to the financial statement(s). This provides the financial report with the principal payment without overriding how QuickBooks records the payment. (Phil)

Missions Trip A few members of my church are participating in an upcoming missions trip.

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There are fees associated with this trip that each member is responsible for. The lead volunteer has paid and is paying some expenses up front and then the church is reimbursing her for those expenses.

At the same time, the other members who are going on the trip are paying the church for their portion of fees that they owe.

1) How do I account for the fees the members are paying to pay off their trip?

2) How do I account for the lead volunteer's reimbursements?

I am using QuickBooks to track the church's finances. I think I may need to start using Fund Accounting in QuickBooks but I don't know exactly how. (Erica, Maryland) Comments: Mission Trip Expenses and Income At our church we record the income in the same account from which expenses will be paid, so that, theoretically, they should be a "wash" although this is not always the case.

Clearly, the individual who is paying expenses and who will be reimbursed by the church should be paid from the same account into which the deposits/fees were made.

We have several different accounts set up in the church's accounting system where "accounting for" these kinds of activities occurs. (Marcus in Texas)

Recording Mission Trip Expenses Great answer as usual, Marcus. Thank you!

Erica, a good resource for setting up Quickbooks for fund accounting is Running QuickBooks in Nonprofits

Also, the easiest way to set up funds in QuickBooks is to turn on class tracking.

See this post for instructions on setting up class tracking.

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One quick point...you probably know this...but you will not issue a contribution receipt for those "pass through" donations that those members gave for their mission trip fees. (vickey)

Reporting Temporary Restricted Funds Is it necessary to report Temporary Restricted Funds in the Income Statement?

(Melanie, CA, USA)

Comments: What must be reported on a Statement of Activities (Income Statement)

The FASB (Financial Accounting Standards Board) 117 states that your Statement of Activities (Income Statement) must report changes in unrestricted net assets (fund balances), temporarily‐restricted net assets, permanently‐restricted net assets and total net assets.

So if no changes occurred in the reporting period, then the temporary restricted fund balance would be reported in your Statement of Financial Position (Balance Sheet). (vickey)

Building Maintenance Reserve We want to set aside a portion of rental income each month into a reserve account for building repair. What is the proper way to do this? (Pat, Ga) Comments:

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Reserve Accounts

I state quite often on my site that in fund accounting you do not have to open a separate bank account for each fund; however, a building fund or emergency repair fund may be an exception to that rule.

You can set up its own fund in your church’s financial records to ensure that all transactions relating to that fund are kept separate from the general fund. (vickey)

Endowment Fund We are just converting to fund accounting and are in the process of determining the starting fund balances for 2010.

1. Is it correct to use the 2010 budget amount plus any carryover from 2009 as the starting fund balance for 2010?

2. What do we use for Endowment Fund balance? Do we use the original amount or the current market value? Or do we use both plus the earned dividend?

(Anonymous)

Comments: Endowment Fund Balance

I use what is actually in each fund at the beginning of the year.

As far as your last question on an endowment fund balance, I sent it to a CPA that helps me out from time to time and this was his response to your question…

I would book the Endowment Fund at the "original amount" ‐ i.e. you need to track the corpus at all times. Usually there are restrictions on spending from the 51

corpus, which is why I want that amount identified. Then, I would have the earnings (whether thru Dividends, Interest, etc. or from increases in market value of the investments) as an unrestricted balance that could be spent.

I think the entries might look like this:

To establish on the books: Dr Cash/Inv acct (for the full bal in the acct) $22,450.00 Cr Endowment (restricted fund bal) (for the original contribution or designated amt) $20,000.00 Cr Endowment (unrestricted fund bal) (for earnings, etc not yet spent) 2,450.00

Current year's activity: Dr Cash/Inv acct (for dividend income) 1,200.00 Cr Dividend income 1,200.00

To adjust the balance to the year‐end fmv: (assume fmv is only 20,450.00) Dr Unrealized loss on investments ‐ Endow Fund 3,200.00 Cr Cash/Inv acct 3,200.00

This isn't something that I deal with, but this seems to me to be one way to handle an Endowment acct. You might just "Memo" the account's fmv, and carry the balance based on actual amounts deposited or withdrawn. (vickey)

Question Simple answer please. I receive restricted endowment money.

My entry I believe is debit cash‐restricted funds and credit a deferred revenue or liability account. Can you please confirm there is no credit to any income or expense account upon receipt? (Anonymous) Endowment Fund Depending on how your books are set up, your credit entry would be to a liability (restricted funds) or (my preference) to a Net Asset account (which would be the equity section in a for‐profit entity). The new FASB codification now specifies three Net Asset Accounts to be used in the Statement of Financial Position instead 52

of Funds. They are "Net Assets Unrestricted", Net Assets Temporarily Restricted", and "Net Assets Permanently Restricted". This is found in ASC 958. (Anonymous)

Recognizing Income from an Unrestricted Gift My church received an unrestricted special gift. Is it okay for 20% of the gift to be recognized as unrestricted income in the general fund and the remainder to be recognized as a receipt in a dedicated account? Or, should the full amount be recognized as unrestricted in the general fund and there be a transfer to the dedicated account? (Anonymous)

Comments: Unrestrictive Gifts

If it was a undesignated unrestricted gift, then the church’s governing body can put it to use anywhere it is needed. You would not be required to record in the general fund first and then transferred out unless the governing body just wanted it recorded that way.

However, if the donor designated where it should be used, then you have the debatable legal but definitely ethical obligation to use the gift for the purpose the donor designated. (vickey)

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General Fund and Subaccount Procedures Is it legal and/or ethical to deposit money taken in as a "general tithe" to be placed in a subaccount of the church designated for example: Kitchen Fund, even though the money is not designated for that fund. Also, can the Kitchen fund be used to pay other expenses other than designated "kitchen" expenses?

(Leroy, Al)

Comments: Transfer Funds from the General Fund

Yes. It is legal and acceptable to transfer funds from the General fund into any other fund because the funds are not donor‐restricted.

Be aware that there is a difference between restricted and designated funds.

Designated funds are monies set aside from the general fund for a specific purpose. For example, your governing body could decide to set aside a certain percentage of the general fund for property improvements, these funds become designated funds.

Restricted funds are monies given, collected or donated for a specific purpose.

The big difference between designated funds and restricted funds is that the governing body can transfer designated funds back into the general funds.

Restricted funds must be used for the purpose in which they were given or raised.

For example, a donor gives your church money for a new church sign. Those funds become restricted funds, so you should not take those donor‐restricted funds and use it...for example...kitchen expenses. (vickey)

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Too Many Funds Question regarding fund accounting:

When I first set up the chart of accounts in the software my church uses, Power Church Plus, I created fund numbers for each ministry ie. General Fund 01, Women's Ministry 02, Men's Ministry 03, Youth Ministry 04, Media Ministry 05, Benevolent Fund 06, and Building Fund 07.

The problem is, the only true restricted fund we have right now is the Building Fund/Loan Repayment Campaign. I am thinking as we go into the new year just to create revenue and expense accounts for the various ministries within the General Fund and no longer code any transactions to the fund numbers I set up.

The only two fund numbers I will continue to use are 01 General Fund and 07 Building Fund. Do you foresee any issues with FASB standards with making this accounting change from the fiscal/calendar year of 2009 to 2010? If we ever have a restricted purpose in either of the other funds, then I will use that fund number in my journal entries, contribution entries, and writing of checks. (Patricia , Texas) Comments: Inactive Accounts

I believe it will be fine to set your fund accounting up as you have proposed.

The rule of thumb to remember in setting up funds is a fund is “an accounting entity that needs to be kept separate, having its own source(s) of income and its own expenses.”

So if those fund accounts you set up in the beginning do not have their own income coming in and expenses going out; then I would make them inactive. (vickey)

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Dissolution of a Building Fund We are a small church and the elder board has decided to dissolve the building fund. Are there any legal ramifications? What procedures need to be followed in order to do this?

Each contributor to the Fund has been asked if they want their money back upon dissolution, and each has declined. Can we transfer the money to the main checking? Do we need a letter from each contributor and do we need to file a form with the IRS in regards to this? Please help Thank you! (Dawn , CO)

Comments: Donors’ Permission

I believe all you need is the donors’ permission to transfer the monies to the general fund; however, I will contact a CPA and make for sure. (vickey) On the Safe Side I am unaware of any IRS restrictions on designated funds. I think ‐ from the standpoint of accountability ‐ I would get a letter from each donor as they proposed. This would help deal with any confusion that may arise later in the event someone became disgruntled. (CPA)

Fund Accounting Initial Set-up Question regarding setting up for fund accounting:

I just bought your Basic Church Accounting and Fund Accounting eBooks and they were very helpful in understanding what we need to do to use fund accounting.

We are now in the process of setting‐up our different funds for 2010 and we have 56

the following questions:

1. Do we need to transfer the 2010 budgeted money from the General Fund to each fund at the start of the year or do we transfer on a monthly basis or only when an expense is incurred?

2. You listed 2 Methods of how to set up in QuickBooks which of these methods will allow us to print separate balance sheets for each fund? Our bookkeeper said he can print separate Profit & Loss reports but he can only generate one overall Balance Sheet.

3. We received a donation of $30K specifically to paint the Church. Do we need to set‐up a separate restricted fund for it or could we just mix it with our Building Fund? (Anonymous)

Comments: QuickBooks and Fund Accounting

Question #1: I would transfer it at the beginning of the year. You can transfer funds from the general funds to restricted funds anytime it is needed (check your church policy, sometimes this requires board approval); however, you shouldn’t (without the donor’s permission) transfer monies from a restricted fund to the general fund.

Set up your funds at the first of the year and then post income and expenses to the proper fund as they occur.

Question #2: He’s right. I do not know of a way to set QuickBooks up where it will print off a separate balance sheet for each fund.

You can print off a Balance Sheet report to see how much is left in each fund or you can run a Transaction Detail Report to get a summary of the income and 57

expenses for each restricted fund for a certain time period...just filter those accounts for the date range you need. (I would memorize it so it would be available when you need it...just have to change the dates)

Question #3: Since a fund is something restricted for a particular purpose and considering the size of the donation, I would set it up as a separate fund; however, if it is just one donation coming in and one expense (painting contractor) going out you could put it under the building fund. That choice is up to you and your church. (vickey)

Property Taxes Debit/Credit?

Question regarding correct posting of property taxes:

If our church makes deposits into a savings account throughout the year weekly to help save for yearly property taxes, what accounts would I credit and debit? (fwca, Georgia)

Comments: Journal Entry for Property Tax

In double entry accounting, you would debit Property Tax Expense and credit Property Tax Payable.

Then you would debit Property Tax Payable and credit Cash when you actually pay the property tax.

Have you checked with your state to see if your church is exempt from property tax? (vickey)

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Cash h Accoun nting Bas sis for O Our Smalll Church h?

I have aa fundamen ntal questiion with re egard to thhe use of a cash accounting bassis for our small churrch in Wash hington, D DC. propriate to o use a cassh basis wh hen settingg up the ch hurch finan ncial? Or iss the Is it app fund or GAAP basis the prefferred method of acccounting? ((Alicia) uch for settting up the e site. I havve found a lot of usefful P.S. Thaanks so mu informaation here regarding fund accounting.

Commeent: Using a Cash bassis in Fun nd Accoun nting Most sm mall church hes use the e cash basis in their ffund accouunting systtem.

Cash an nd accrual methods d differ only in when inncome and expenses are record ded.

Under tthe cash method, inccome (offerings, funddraisers, ettc.) is not ccounted un ntil cash (orr a check) iis actually received, aand expenses are no ot counted until they are actuallyy paid.

Under tthe accruall method, ttransactions are reco orded wheen the ordeer is made,, the item is d delivered, or the servvices occur, regardleess of when n the money for them m (receivaables) is actually rece eived or paaid.

Fund acccounting is somethin ng totally d different Itt is a system unting baseed m of accou on sepaarating info ormation in nto groupss which refflect donorr‐imposed restriction ns.

So you w would nee ed to deterrmine if you are goingg to use th he cash or accrual method d in your fu und accoun nting syste em.

Hope th his makes ssense to yo ou. Church h accountinng is so diffferent and d it can be kind of confu using until you learn the basics of it :‐) (v vickey)

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Cash or o Accru ual?

Do mosst churchess 400 mem mbers or lesss use accrrual or cash base acccounting?

(Tony, R Rochester NY) Commeent: Cash vss. Accruall Accountiing Most sm mall church hes use the e cash basis method of accounting. See tthe above p post for the difference between tthe cash o or accrual m method of accounting.(vickey))

rger Chu urch Utillize Accrrual Acco ounting? ?

Lar on regardin ng a larger church using accrua l accountin ng: Questio

planter and d pastor haas been in communitty sized My experience as a church p es, using th he cash acccounting b basis and paying as w we go, mon nth to month, churche year to year, with great peace and succcess.

oks of a mu uch larger cchurch witth a consid derable I am now looking at the boo uch larger o operating ffunds. mortgagge and mu

ution requires the acccrual basiss and regu ular audits. Do you haave The lending institu he accrual method fo or a a resource I can sttudy that sspecificallyy guides the use of th attle) church?? (Rick, Sea

Commeents:

Accrua al Method of Accoun nting A resource for stu udying Accrrual Accou unting doessn't come tto mind, b but any ples book w would app proach acco ounting fro om the acccrual meth hod. accountting princip To overrsimplify ‐ aaccrual is tthe generally accepteed accountting metho od, becausse it recognizes income e when "eaarned" (wh hich is som mewhat of an issue to o deal with h in 60

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, CPA)

Depreciation - Balance sheet only or can I use Profit and Loss?

Question regarding depreciation.

I need some advice regarding Fund Accounting.

I use a software package that allows me to depreciate my fixed assets, but to do so I have to include in the transaction the use of a Profit and Loss GL account.

My Chart of Account Structure is set up that all my accounts are of the type Balance Sheet. Is it OK for me to use a Profit and Loss account when I am Fund Accounting? (Mary, Edinburgh) Comments: Depreciation for Churches Depreciation can be very confusing. Your accounting software is going to include the use of a Profit and Loss (Income Statement) account because depreciation is considered a noncash expense which goes on the Profit and Loss statement.

However, let me insert a quick lesson on fund accounting. Fund accounting is simply a system of accounting based on separating information into groups which reflect donor‐imposed restrictions.

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So just like “for‐profit” accounting, you are going to have both Profit and Loss accounts (income and expense) and Balance Sheet accounts (assets and liabilities) in your Chart of Accounts.

Okay back to your question…

First of all, determine if your church even needs to track depreciation. See this post on whether a church needs to depreciate fixed assets?

If you determine you need to track depreciation, then...

If you don't already have one, you will need to set up a depreciation expense account.

Okay, this is where it gets a little confusing...depreciation also gets recorded on a balance sheet account.

It is called Accumulated Depreciation. It is a contra asset account. The use of this account allows an asset account such as Equipment to continue to report the equipment's cost while also reporting in the account Accumulated Depreciation the amount that has been charged to depreciation expense since the asset was acquired.

For example: say you spend $5000 for a new piece of equipment. You expect this equipment to last 5 years. Using the straight‐line depreciation method, your accounting journal would look like this:

When you first make your purchase:

DR. Equipment $5000

CR. Cash $5000

Then each year, you would make the following journal entry to record the depreciation expense for the equipment:

DR. Depreciation Expense $1000

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CR. Accumulated Depreciation $1000

I know you have software that automatically does this for you, but sometimes it helps to know the basic accounting concepts behind its actions. (vickey)

Why Should You Keep Accounting Records?

How and why should churches keep accounting records? (simms adomako, Ghana) Comments: Accounting for a Church Why? Before making a major cash purchase for your church, you need to know the balance of your church’s bank account.

Likewise, your church’s financial administrators need timely, useful information in order to make good decisions regarding your church.

How? Research your country's rules and regulations and develop a system that conforms to those laws.

However, it should be an accounting system that is user‐friendly (most small churches rely on volunteers without much accounting experience) and informative for your church's administration to base their financial decisions on. (vickey)

Keeping records is so important!

I'm so glad I found this site. So many non‐profit organizations fail to realize that keeping a close eye on their finances and doing things the RIGHT way will 63

PROTECT. Not only does keeping track of finances help when being audited by the government (this should be obvious), but if/when there is ever any doubt among their followers, constituents or philanthropists, the paper trail that an organization keeps can sometimes wash clean any suspicion that mere words may not be able to.

Setting up Procedures for Restricted Cash Looking for procedures for setting up restricted cash reserve. We need wording for the restricted cash procedure for our church. We have received some money but want to restrict how we use the money...only for dire financial emergency for the church but not in the operating fund.

Comments: Restricted Cash Why not call it Dedicated Emergency Funds? Deposit the funds in a separate account from the operating funds or have an accounting system that keeps that cash for Dedicated Emergencies separated from the operating funds checking account balance. (Anonymous in NC)

Amount of Time to Decide to use Monies from Building Fund We have a small church (about 125 in attendance). We don't have any building projects in progress or any planned for the future presently. But sometimes people give monies designated for the building fund. Since we did some building improvements during the past few years (refurbished the sanctuary, replaced the HVAC units, etc.) and we didn't use the building fund for those purposes, can we remove the money now if we decide that we need it for other purposes?

My thought is that the accounts are now closed. We cannot now decide to retroactively use the money from the building fund. Am I correct? If I can retroactively use it, then how would I record the transaction? (Anonymous) 64

Comments: Monies in Building Fund

Our church is about the same size as yours from the standpoint of membership.

We have about $12,000 currently remaining in the building fund after all new pews were installed two years ago. This money will (and should) remain in the building fund to be used for routine or other kinds of maintenance and repairs that the annual operating fund budget for repairs and maintenance will not cover.

If the funds were donated to the building fund at any time to be used for new construction or for major or routine repairs, then I think those funds should be used only for those things and should not be taken from the building fund and transferred into the general fund to be used for day to day operations. There will come a day when the funds will be needed for something to do with the church's facility. (Marcus in Texas) Building Fund vs. Facility: Building Repairs & Maintenance

We had a building fund account that was closed, the remainder of funds went into retained earnings. Now that the fund account is closed, how would you record major building repairs, such as a new roof or stucco repairs? Can you put them under facility: Building Repairs and Maintenance? (Diana) Building Fund Monies

It seems to me that if funds were automatically closed into the retained earnings account (probably at year‐end), a general journal entry could be made in a succeeding year to move funds out of retained earnings and back into to a building fund or capital improvement fund account. As Treasurer, I would not do this sort of thing without first gaining the approval of the appropriate persons.

We have a Stewardship Committee at our church that would be consulted on matters of this nature, and we also have bi‐monthly "business meetings" where the matter would be voted on. However, it would be important to first check the 65

files to make sure that the funds transferred into retained earnings have not already been expended for something else. Spending the same monies twice is too easy to do, so caution is advised. (Marcus in Texas)

Notice: The information provided in this book is not meant to substitute for the advice and covered opinions of a qualified tax professional. The materials contained in this book are provided for general information purposes only and do not constitute legal or other professional advice on any subject matter. The information contained within this book does not fall within the IRS definition of a covered opinion; therefore, it cannot be used to avoid IRS penalties.

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