Tag Archives: non-profit

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.


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.


How to Choose a Church Management Software (ChMS) Solution!

How to choose a church management software solution:

  1. Know your requirements and search for a package that meets these expectations.  A bloated system can hinder rather than help. No software can provide everything so find one that meets your needs.
  2. Try before you buy if possible. While this may delay the decision process it will certainly ensure you get what you need. 
  3. Call the support department and have high expectations.  There are many church software companies on the market today that have fantastic support for their products.  Getting a resolution within minutes rather than days should be a requirement.

Each church is unique, but there are four fundamental benefits software should provide:

Continue reading


Interview with Icon Systems at the Church Accounting Software Guide

Several of us at Icon Systems recently had the chance to be interviewed by the fine folks over at ChurchAccountingSoftwareGuide.com. We think you’ll find it well worth a read! As they wrote:

Why this Interview is a Must Read for Anyone Dealing with Church Management and Accounting

It answers (from a licensed Certified Public Accountant) some of the most common questions I get about church accounting:

  • Are there any special accounting standards our church needs to be following?
  • Can my church lose its tax-exempt status?
  • Are my current accounting reports in compliance with non-profit regulations and standards?
  • Is there a church accounting software program that can help me be in compliance with non-profit standards?
  • My church is small, do I need to worry about the accounting standards?

We also cover the general administrative challenges that churches face, some of the best accounting-related features in IconCMO, and have a detailed overview from our CPA about the federal fund accounting guidelines for churches and other non-profits.


Hardware Update for IconCMO

As many of our clients know it has been a busy time for IconCMO in the recent weeks with the software enhancements like Excel exporting for reports, accounts receivables, calendar enhancements, payroll checks, email history and contribution statements.

Now it is time for a hardware update. A few months ago we placed a new database server into the hardware architecture as a secondary server to the primary database server to ensure it would work properly for our clients. The new hardware has shown great reliability and speed.  This week the new server will become the primary database server to the benefit of all of our IconCMO clientele. This change will help with an increase of certain operations on the system. For example saving records, pulling data for reports, etc should be faster and limited only by the user’s Internet speed.

When a church elects to use IconCMO over the typical desktop system these hardware improvements are costs that are covered in the price of IconCMO. The non-profit organization does not have to bear this hardware cost in their yearly budget for replacement or the maintenance. Rest assured that Icon Systems uses top quality servers  and replaces them frequently to provide our clients with the best possible church software experience available today with IconCMO!


Why the Church’s Financials should be Auditable?

Many churches try their best to do everything right and succeed every day in their mission(s). There is one area in the church that can be detrimental even if the best intentions were meant – the church’s books. Once a church loses the trust in the congregation and/or community their reputation as being a trustworthy organization is tarnished for a very long time. This is why using the proper accounting software, techniques, and having the right people are essential to ensure the church’s overall mission is not tarnished in anyway. Continue reading


Streamline Church Software and Reduce Cost with Cloud Computing!

PR Contact:
Lauren Hunter Public Relations
916.838.2184
lauren@laurenhunter.net

Streamline Church Membership Management, Church Fund Accounting,
and Reduce Church Software Costs with Cloud-Based ChMS, IconCMO

IconCMO Offers Cloud-Based Financial and Administrative Technology Advantages to Churches

Moorhead, MN, April 25, 2011—As churches seek to increase efficiency on smaller budgets, looking to cloud-based church management software (ChMS) has incredible advantages. While there are many church technology providers on the market offering robust church management solutions, few have complete fund accounting, contribution, and payroll modules in addition to membership management—all in one integrated web-based church management system.  Read the full Press Release!


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