Churches are complex organizations that need special church financial software to help them make decisions and demonstrate transparency. The best church accounting practices start with a fund accounting system that lets you allocate income and expenses, and budget by fund. Take a look at some of these church finances best practices.
Refine Your Chart Of Accounts
The goal of your chart of accounts (COA) is to provide the right information on your reports. If this system is not conducive to this, something needs to change. Most small churches just need to track a few bills they pay, including salaries, and they also need to track how much money they get from giving. That’s about it.
However, as a church grows, the accounting structure becomes more complicated as more things need to be tracked. For instance, wanting to launch a new church location. In this case, you’d now have both administrative costs and campus costs.
Consider all the separate funds that need to be tracked in a larger church, from a general fund to a missions fund, a youth group fund, capital campaign, etc. As you can see, it starts to get fairly complicated from an accounting standpoint. Having a good foundation in place (your chart of accounts) is super important to help provide churches with the right information for their financial reports. Your COA needs to make sense for what you want to accomplish.
Find The Right Balance
Oversimplified structures may have a category set up called “administrative expenses” with everything falling into that category alone. For example, making sure it’s broken up into sub-accounts like “office supplies” or “cleaning supplies” is something you should be tracking separately. You’ll want to know what you’re spending on each. Don’t leave the category too broad.
On the other hand, we’ve seen countless churches that have way too detailed of an accounting structure. Structures that account for “office supplies” that have sub-sub-accounts with really detailed finite things like pens or paper or paper clips—it’s just too much. The problem with that is it becomes far too cumbersome to manage quickly. At the end of the day, you really just need to know how much you spent on office supplies.
Avoid Too Many Funds
Churches often have common fund structures like general funds, missions funds, building funds, etc. You don’t need an office supplies fund. That might be an expense category, but it shouldn’t really be a fund. Don’t get too granular with your funds. We’ve also seen assets and asset accounts set up as funds. This is typically done in software that can’t adequately administer fund accounting properly, such as QuickBooks®.
Church Accounting Practices In Closing
When it comes to church finances best practices, every church is unique. However, there should be some key rules to follow in order to have better data and insights into your church’s financial health. Remember, the better organized your church’s finances are, the better decisions you’ll be able to make for your members and community.