Church

[Super Mom]

Question, I have a church that I'm helping with financial issues. They do not have to file 990's so maintaining a balance sheet with depreciation seems like a HUGE waste of time as well as a point of confusion with reports to council members, they think of money paid out, not assets vs expenses. I'm thinking show everything on the P&L, but that goes against my grain and doesn't seem correct. I was thinking it through this morning, and can think of no reason to maintain a balance sheet, unless the church closes it doors, then I don't know how that would happen. There is no debt other than payroll liabilities, and this church has been in existence for several years. What do you think? Show all on P&L or do a balance sheet?

[ChEAr$]

You need to somewhere take a quick course in fund accounting for non profits. Start with a Google search.

Or you can wait until John H weighs in here. He's the expert.

[kpangelinan]

P&l................

[Uncle Sam]

Simply because a religious institution is not required to officially file a Form 990 with the IRS doesn't excuse it from keeping properly recorded financial records.

And to "not confuse the council members" is one of the most foolish reasons I've ever heard of to NOT to keep the records the way they're supposed to be. How would you ever be able to obtain financial assistance from either a gov't, insurance company, or bank if no balance sheet was maintained?

This past year I had a religious institution come to me to simply review their financial records. Even though there was a
CPA on their Board who didn't have much experience with tax exempt financial reporting - they still wanted it checked out to see if it was right just in case there was ever a need to dislose financial information. What I found was - the institution owned the building (house of worship) that housed the religious clergyman - yet there was NO fixed asset cost or accumulated depreciation set up on the balance sheet, the P & L did not segregate their membership dues from other contributions or sale of religious items, purchases of food for their catering of religious events was commingled with the parsonage allowance for the religious leader, and couldn't determine how long they had their office and other machinery used even though they kept repairing it and didn't replace it.

So for a financial professional to simply turn the other way and disregard the professional duty of maintaining properly reportable transactions simply to satisfy the governing board, probably comprised of non-financially educated people is
disgraceful.

[JohnH]

Harlan, you give me way too much credit.
Uncle Sam and Mike Malody immediately come to mind, and I'm sure there are many others.

I agree with Uncle Sam that it's best to keep the books in a double-entry system. Double-entry bookkeeping forces you to maintain mathematical integrity in the accounting process for any entity. The balance sheet will certainly be necessary if the church ever borrows money, and balance sheets can be a real pain to reconstruct.

It's also important to understand a little about fund accounting concepts and how the differ from for-profit accounting, because that's where the person preparing the financial statements learns how to handle certain transactions. For example, how do you account for designated contributions which must be held separately until the project they are dedicated to is launched? (balance sheet liability account). In fact, designated contributions MUST be handled through the balance sheet unless they pass directly through to the project at the time of receipt. (Sooner or later somebody's going to want to contribute $50 to start a fund to replace the organ, upholster the pews, or gold plate the steeple).

I don't think it's relevant to show depreciation on reports of contributions and operating expenses - these are generally reports of cash in and cash out. But it is important to keep records of when assets are purchased and what was paid for them. And if you ever have to produce a report for a bank, you will have to make an adjustment for depreciation of those assets at the time the report is produced.

Finally, maintaining the balance sheet doesn't mean you must include it in the reports to the board. Most board members are only interested in the cash in and out. If that's all they expect then you can just give them the minimum. But if you ever have a board member (existing or a new addition to the board) who expects balance sheet info and you don't have it, that can become a major headache as well as a distraction from the important work & purpose of the church. Best to be prepared.

[MAMalody]

Uncle Sam and JohnH said it well and said it all. Let everything be done orderly and in a proper fashion.