Why a Church Balance Sheet is like a Pizza Pie

According to the Financial Accounting Standards Board (FASB), non-profit organizations – no matter the size – must produce a Statement of Financial Position. The Statement of Financial Position is a church balance sheet. In the past when viable software solutions were not available, churches would use separate checkbooks to keep the money separate for their ministries. Other creative ways developed over the years, like using spreadsheets or classes to tediously track money and produce reports.

These methods have led to inaccurate reporting, possible misappropriation of funds, slow production of the reports, and reports that were not in compliance. Fund Accounting was developed to help churches manage various funding sources and how money is spent. Fund accounting simplifies the process by having one checkbook, which is separated into multiple funds with individual balances.

To help clarify fund accounting, let’s pretend the checkbook is a pizza pie:

Each fund’s balance, or net amount, is a slice of the pizza pie. To simplify this example, we will not have any liabilities. If we apply numbers, the entire pizza pie is worth 1,000.00.  (Yes, we realize that is an outrageous price for a pizza pie.)

The Youth Fund’s slice is:	400.00
The General Fund’s slice is:	500.00
The Mission Fund’s slice is:	100.00
Total	1000.00

The total still equals 1,000.00, but each fund has their respective slice of the pizza pie representing the net worth. The General Fund owns the majority and the Mission Fund owns the smallest slice. This does not mean either fund is more important than the other, only that one fund owns more than the other. In fact, a common church process that is often out of compliance is taking in all money through the General Fund and then distributing it to other funds. This suggests a hierarchical structure where the General Fund oversees the other funds.

Now let’s look at some transactions and see why fund accounting looks different from the accounting methods used in the For Profit industry. The For Profit method is shown first and the Fund Accounting method second.

The organization receives a Telephone Utility invoice for 150.00:

According to the organization accounting procedures, the double entry accounting would state the following:

	Debit	Credit
Checking		150.00
Telephone Expense	150.00

This would not work or be in compliance with FASB because we do not know which Fund (remember funds are the slices of pizza pie) should be reduced to pay this bill, therefore adjusting the overall balance of the checkbook and the net amount of the fund. Fund accounting solves all these issues because you choose which fund should pay for this expense. In this example, the General Fund pays for this monthly bill.

The first part of the transaction mirrors the For Profit method; however, the addition of the Fund category is the key.

	Debit	Credit	Fund
Checking		150.00	150.00 General
Telephone Expense	150.00		150.00 General

Now the new balances for each slice of pie should be the following:

The Youth Fund still owns:	400.00
The General Fund is reduced:	350.00 (500.00 – 150.00 = 350.00)
The Mission Fund still owns:	100.00
Total	850.00

Fund accounting empowers the church by giving it the ability to see financial reports for the whole pizza pie as well as for each slice. A fund accounting system can produce a balance sheet just for the General Fund that would show 350.00 in the checkbook, which is the net amount (worth) of the General Fund. Additionally, a balance sheet for the Youth Fund would only show 400.00. A balance sheet for all funds would show the entire 850.00 in the checkbook, but would not specify how much money is allocated to each fund. This type of report is typically called a consolidated balance sheet.

Advanced Setup:

Generic accounts minimize the Chart of Accounts and simplify reporting (i.e. having one Telephone Expense instead of a Pastor Telephone Expense and a Youth Pastor Telephone Expense). The following example will show a Telephone Bill that is split between the General and Youth Funds. Notice the same generic accounts – Checking and Telephone Expense – are used for both funds.

	Debit	Credit	Fund
Checking		100.00	100.00 General
Telephone Expense	100.00		100.00 General
Checking		50.00	50.00 Youth
Telephone Expense	50.00		50.00 Youth

Now the new balances for each slice of pie should be the following:

The Youth Fund is reduced:	350.00 (400.00 – 50.00 = 350.00)
The General Fund is reduced:	400.00 (500.00 – 100.00 = 400.00)
The Mission Fund still owns:	100.00
Total	850.00

The Balance Sheet for the General Fund would show 400.00 in the checkbook as the net amount (worth). The user should be able to create a report for the Youth Fund and only see 350.00 on the balance sheet as the net amount (worth). If the user ran a balance sheet for all funds, it would still show the entire 850.00.

Icon Systems is the only church management software provider that is certified in the FAS 95 and 117 required by the Financial Accounting Standards Board for the fund accounting standards that all non-profit organizations need to follow. Visit www.iconcmo.com for more information or to register for a free trial.

Social Media Engagement for Churches – Is it Important?

The short answer – YES!!!

The longer answer is more complicated and dives into what makes people tick or respond to information. People interact more than any other creature in the world through verbal, physical, or non-verbal communication. As people moved further away from family and friends to accomplish their dreams, today’s technology have allowed them to still stay connected. Instead of sitting at the local café like past generations and catching up on everything in town, we each log into a computer to share pictures, blogs, life stories, etc. at a personable level through Social Media.

Why are people attracted to this?

Social Media shows the human side of people just as if you were sitting in that café many years ago. In other words, people want to know that they are just as average as the pastor in the church is — he has struggles, triumphs, and questions just like anyone else. When the human side shows through communication channels, people will respond. Does your church show the personable side in its ministry to others inside and outside your organization?

We noticed this through our own company postings on Facebook, Twitter, Google +, and our blog on WordPress. More responses came from personal things like pictures of our first snowfall in the Upper Midwest, a picture of a box of chocolates that we received, and our team at the company Christmas party. Although many of our blogs discuss important aspects of church software and have pictures, the response rate is lower. Why? The blogs are viewed as information to consume; people learn from them and move on. People are more likely to respond to a personal story about Icon Systems and its employees or a friendly client interaction.

What things does your church do to show the personal side of the organization?

Church Donation Software – Audit List

It is that time of year when many non-profits like churches provide contribution statements to their donors. It is also a good time to assess if the current solution is able to give these statements easily, quickly and has majority of the features that are still important to the church. Over time, software becomes outdated or the organization’s needs change. What features would the church like to have that they currently don’t?

Having the ability to email statement to save money in these hard economic times and use it for more worth wild missions is an important consideration. For example, a church with 150 active donors that send quarterly statements would spend $264.00 annually in postage. This total does not include envelopes, labor, and labels associated with mailing the statements. Does the church software provide a return on investment and pay for itself each year it is used?

Having different options during the preparation of statements is an important consideration. Below are some items to audit, but feel free to create your own list and then audit the current solution and compare it to others.

For example, does the software have the ability to:

•     Create different statements for the givers and non-givers?
•     Follow the government regulations?
•     Print statements based on status codes of the members?
•     Print the pledge amounts?
•     Print tax-deductible, taxable and IRA funds separately?
•     Print check numbers on the statements?
•     Print comments for Gift in Kind contributions without a monetary value assigned?
•     Provide different formats for the contributions statements?
•     Format statements for windowed envelopes?
•     Print labels to match the statements?
•     Include a church logo?
•     Include a custom thank you letter at the bottom?
•     Email statements to specific email addresses for each member?
•     Produce statements quickly (eg: under 30 seconds for a mega church)?

Creating an audit list that the church can use to audit their current solution and compare it should be the first objective when reviewing church donation software. Additionally, churches need a software package that includes more than tracking church donations, which means a similar audit list should be made for membership and the accounting areas of ministry.