Tag Archives: fund accounting

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:

Picture of Pizza Pie representing a Church Balance Sheet

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.


You asked, we listened!

We made a couple of changes to the contribution entry window:

Speed Contributions Entry:

The contribution entry screen has been slightly rearranged and modified to allow for fast keyboard access. The “currency type” option was moved up, and you can now use the “Enter” key to move between fields on the entry screen.

Allow EFT and Non-Cash Gifts in Contributions:

To enable churches to more accurately record contributions, we’ve added the ability to choose “EFT” and “Non-Cash” as currency types on the contributions entry screen. Posting journals and other contribution reports were modified accordingly. Non-Cash allows you to record gifts in kind with a zero amount as per IRS guidelines. Additional reports were added to give the church a record of all non-cash donations by date range.

Also in response to the many requests we received:

Icon Systems is happy to present the 2011 Year End Processing Tutorial Video. We are planning to create more tutorial videos down the road, so any comments or suggestions you have are most welcome! As always, the Year End Processing Guide is also available under your Getting Started menu in IconCMO or you can click here for a copy.


Church Software for Districts and its Churches.

The evaluation of district software for churches should take into account the various tasks performed at each level of the organization (e.g. Church, District, Regional, National, World Offices).

Capabilities of District Software:

  1. The ability to move a church from one regional office to another.
  2. Communication capabilities both within a single entity as well as between each entity throughout the organization.
  3. Communication is based on roles within the organization – e.g. regional secretaries versus church secretaries.
  4. Adding church plants or multisite campuses.

Using one software system throughout the organization helps simplify day-to-day operations

If the software is capable of handling data for individual churches as well as multi-site organizations, users do not have to learn more than one system and data entry is more consistent. The use of a single system throughout the district also allows each church to uniquely structure its own chart of accounts, contribution funds, etc. while allowing the district office to combine the data from each church into one consolidated report.

For example, a district office could collect the membership data from each individual church and consolidate it into one report to analyze the organization as a whole. An individual church would also be able to track several youth or memorial funds that would show as one youth or memorial fund total on the district office reports. The ability to customize separate structures for both levels is crucial.

Why is all this important?

First, the software needs to tackle head-on the various issues each entity is facing at their respective levels. Having one system reduces errors in reporting, ensures a high level of data integrity, increases speed in data gathering, and prevents the users from having to learn and manage five different systems.

We will use an orchestra to illustrate this concept: if each musician was playing a different musical composition would you expect a well-tuned concert? Certainly not – all the musicians have to be on the same page of the same song. The same is true when it comes to the technology used in churches and throughout the entire organization – shouldn’t the same software be used so your ministry can operate in-sync like an orchestra?

Second, providing data to the district office gives an early indication if certain churches will need help financially or within their ministry staff. It can help to determine which entities are flourishing with donations or declining. Is attendance increasing at one location but not the other? All of these and many more questions are answered objectively with the right software in place.

Third, with a one-system approach, confidentiality across the platform is essential so one church cannot view another church’s records. The system must also allow churches to opt out of sending data to the district office. Most district software packages fail in one or more of these areas: membership, financials, data gathering and confidentiality. But you can rest assured because there is an answer for district offices → IconCMO+ software!


Benefits of a Church Payroll Solution (Part II).

Church Payroll Software Cost and its Benefits

One option for churches is to outsource payroll responsibilities. Payroll services typically charge $1 or more per check, with a minimum fee of $10-25 each pay period. Additional fees are often incurred for quarterly reports and W-2 preparation. These fees can amount to a substantial number over time.

Another option is for the church to purchase payroll software, which usually requires annual upgrades. These upgrades are not only expensive, but the installation process also consumes your valuable time.

The Icon Systems payroll module provides you with an unlimited number of paychecks and pay periods for any number of employees for only $110 a year. Since the system is entirely web-based, upgrades are automatic and cost you nothing extra. Additionally, the web based capability allows payroll checks to be prepared offsite but printed on location for the staff.

Price should not be the only factor considered when choosing a payroll system. The benefits of using the right church payroll software are numerous; however, we summarized the most important ones here.

  • Confidentiality – Church payroll software needs to be password-protected so only authorized people have access to this confidential information. You can have volunteers and staff members use the system to enter contributions and even process accounts payable checks without making sensitive payroll figures available.
  • Accuracy– The importance of accuracy in any church payroll system cannot be overemphasized. Not only do employees rely on the church to calculate paychecks correctly, but reports created for the IRS and other government entities also need to be accurate. Issues concerning pay tend to quickly dissolve trust in any organization, not to mention inaccurate reporting to the government could result in heavy fines.
  • Integration – Using separate church payroll software requires you to summarize the information and record the journal entries in the accounting system. Since the IconCMO Payroll module links directly to the fund accounting records, you are able to allocate staff pay to various funds as well as obtain up-to-date, detailed reports that comply with guidelines set by the Financial Accounting Standards Board (FASB.)
  • Reliability – Icon Systems has been in the business of helping churches for the past 20 years and its certified church accounting software follows the FAS 95 and 117 guidelines. Since you trust Icon Systems to take care of your organization’s accounting needs, it makes sense to turn to us for your payroll needs also.

We hope you have enjoyed reading this two-part series about church payroll software – if you missed the first post, you can read it here.


The Secret to Affordable Church Payroll Software! (Part 1)

Payroll is one of the most difficult, time consuming, and costly administration tasks churches repeatedly encounter. Churches of all sizes are required to use “fund accounting” as described by the Financial Accounting Standards Board (FASB) guidelines. Fund accounting is a specialized way of accounting designed for non-profits; if you use this accounting method we recommend you read this informative interview with Nate at The Church Accounting Software Guide.

More often than not, Payroll + Fund Accounting = Confusion

FASB Reporting guidelines add to the difficulty, time, and costs already associated with payroll. For example, churches can use money in the General Fund and the Youth Fund to pay the Senior Pastor and Youth Pastor, respectively. Alternatively, both Pastors may be paid using money from the General Fund. On top of regular income, IRS reporting and taxes vary for items such as housing allowances and vehicle expenses. Paying church staff members can also prove to be tricky; reporting and taxes for hourly or salaried employees follow a completely different set of guidelines altogether. Payroll management also tends to get significantly more complicated for multisite organizations.

Payroll does NOT have to be time-consuming

The initial setup of a payroll system is expected to take some time; however, this task may be considered to be of lesser importance since it is not recurring. Completing the payroll for each pay period, on the other hand, needs to be fast and relatively simple. An effective, easy-to-use church payroll solution will substantially reduce the time needed for you to complete recurring payroll cycles, therefore lowering the overall costs associated with payroll. Evaluate your current payroll system by asking yourself these questions:

  1. How long does it take me to print employee paychecks?
  2. Can I pay tax liabilities to government agencies quickly and efficiently with only a few clicks of the mouse?
  3. Are the liability accounts automatically updated when I cut checks to make these payments?

*Making consistent entries to liability and expense accounts each pay cycle minimizes the likelihood of mistakes.

The Ultimate Cost-Saving Secret:

Systems that charge thousands of dollars for payroll essentially offer the same benefits and features as basic payroll software. Some of the expensive payroll systems do not even comply with fund accounting guidelines. The price of church payroll software is dependent on who enters the tax formulas, so find a package that requires the church to input the tax formulas. If your church leaders are willing to put in a few hours of work at the start, they can save the church hundreds if not thousands of dollars each year in payroll expenses.

Icon Systems has streamlined the recurring task of paying employees by incorporating payroll into the IconCMO fund accounting software system in order to reduce the difficulty, time, and high costs associated with church payroll administration!


6 Steps to Maintaining your Church Tax Exempt Status.

Lauren Hunter did a wonderful write up of what to look for in church software. Please read the full article. Below is just a summary of some of the information you will find.

Know what regulations pertain to churches and what organization creates them. Understand and know why you cannot keep balances in the revenue and expense accounts. Additionally, liabilities should not have fund balances because liabilities are money owed and not money the organization owns. Does church size matters when it comes to accuracy of church reporting or does the church have to report the financials at all?  There are two major repercussions of having bad financials. One is moral and the other is legal.  When an organization is out of compliance trust is lost in the community, which is the moral issue and is very hard to recover. The other is the church can lose its tax-exempt status and cannot claim to be a tax-exempt organization legally. Find out where to go to get more information. Tell us what you think.


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