Essential Church Financial Reports
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In this lesson, we are going to learn about the essential church financial statements, a.k.a. reports your organization needs to operate. Pretty much every type of organization needs two reports, but churches actually need four reports.
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Prefer the skim-able version? Keep reading…
1. Balance Sheet (Statement of Financial Position)
The balance sheet, known as the statement of financial position for churches, illustrates an accounting equation and shows a snapshot of your organization’s financial health. It can also show you the current balance of each of your funds if you have been doing true fund accounting. The accounting equation is:
Assets = Liability + Equity
An easier way to illustrate this is by saying the things you own, minus what you owe, equal your overall worth. When viewing this report, it will quickly show you if your organization owes more than it owns.
2. Income Statement (Statement of Activities)
The income statement, known as the statement of activities for nonprofits, shows this:
Income – Expense = Net Income (Increase in Net Assets)
What this means is the money you receive, minus the money you spend, is called your net income(increase in net assets for a church). When viewing this report, it will quickly show whether your organization is making more than it’s spending.
3. Statement of functional expenses.
The statement of functional expenses is where fund accounting really begins to shine. This report shows not only how much money you’ve spent, but breaks each expense down by fund and category. For instance, it would show the total administrative costs across your entire organization, and how much each fund has spent using these accounts. Assuming you have created an effective chart of accounts and recorded everything properly, these reports should be very simple to create.
4. Cash Balance by Fund
Its important to be able to ask the question, how much of my fund do I have available to spend? You can see this by monitoring the starting balance of your fund for a date range, tracking the income and expenses tied to the fund, and then see the ending balance of that fund at the end of the date range.
That wraps up the Essentials of Church Accounting.
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