It’s important that you mine the right financial data in order to understand the financial health of your church. While most businesses can get by with two reports, there are four essential church financial reports that every church should use.
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1. Balance Sheet (Statement of Financial Position)
The Balance Sheet, known as the Statement Of Financial Position for churches, illustrates an accounting equation. This report shows a snapshot of your church’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 church owes more than it owns.
2. Income Statement (Statement of Activities)
The Income Statement report (known as the Statement Of Activities for churches) is illustrated with the following equation:
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 church is receiving more than it’s spending. If your church’s net income is negative, this means you should up your efforts to increase giving, or find ways to cut expenses.
Download a free Income Statement report template.
3. Statement of Functional Expenses
The Statement Of Functional Expenses is one of the most crucial church financial reports. This 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 church, 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
It’s 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 viewing the ending balance of that fund at the end of the date range.
Unable to Run Church Financial Reports on Your Own?
If all of this seems complicated, you’re not alone. Many church leaders either don’t have a background in accounting or can’t find the time to keep their books up to date. Luckily, there are church bookkeeping services that can help you stay on track.
These services are administered by professional bookkeepers who specialize in church accounting. Outsourcing bookkeeping services may be cost-prohibitive for some churches. However, many churches will benefit in the long run by having access to these four essential church financial reports in real time.
In other words, the insights into your church’s financial health will likely outweigh the costs of using a church bookkeeping service.
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