Church Accounting: The How-To Guide for Small & Growing Churches



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THE Church Accounting Guide for your growing church!

Accounting for churches is not the same as accounting for businesses.  A church bookkeeper must be aware of the special tax codes that govern the church's unique tax standing.  But it's often hard for overworked or volunteer administrators to know every aspect of tax code that affects their church's ability to accept donations, oversee a benevolence fund, file church payroll, and offer a compensation package for their minister. 

Lisa London, The Accountant Beside You who brought you QuickBooks for Churches & QuickBooks for Nonprofits, explains the specialized needs of church accounting in an easy-to-understand manner for church administrators and volunteers.  A CPA with decades of experience working with businesses as well as churches and other nonprofits, Lisa explains complex concepts in a reader-friendly, engaging manner.  She is joined by Vickey Boatright, an accountant who runs THE online site for free church accounting, www.freechurchaccounting.com.  Together, Lisa and Vickey guide you through every essential aspect of church bookkeeping, including the specifics of small church accounting. Joining them is Terressa Pierce of freechurchforms.com as she steps the reader through how to organize the church office.

Church Accounting: The How-To Guide for Small & Growing Churches is a must-have reference for all the nuts and bolts of church accounting no matter what your accounting system. Lisa and Vickey help you set up accounting spreadsheets and explain the different types of accounting packages. If you are already using QuickBooks, it's also a perfect compliment to QuickBooks for Churches and Other Religious Organizations

Additionally, The Accountant Beside You will show you how to:

  • calculate and file employee payroll without paying for an outside service,
  • design and implement a compensation package for your minister, including a housing allowance,
  • set up and administer a benevolence fund,
  • track church contributions,
  • acknowledge donations per IRS guidelines, including vehicle donations,
  • prepare for an annual audit,
  • budget and forecast to provide for future church growth,
  • reimburse employees' expenses per IRS guidelines,
  • set up proper internal controls to guard against fraud or error, and
  • implement the basic steps of starting a church.

The Accountant Beside You series of accounting books for churches and nonprofits have been sold in all 50 states and every inhabitable continent.  Besides the detailed, step-by-step instructions provided in the guides, both e-book and print, Lisa London offers supplemental and often free information online at www.accountantbesideyou.com and through her popular YouTube videos and webinars.  Church accounting will be less worrisome with The Accountant Beside You every step of the way.

Shipping costs are a flat rate of $3.95 for media mail or $7.95 for 2-3 day USPS Priority Mail, no matter how many books you purchase. E-Books have no shipping costs and are available for immediate download. 

ISNI 0000 0004 5059 7909 Lisa London, Author

Table of Contents

I. Proper Procedures and Internal Accounting Controls

A. The Need for Strong Internal Controls
B. Governing Body's Responsibility
C. Separation of Duties with a Small Staff
D. Controls for Receiving Cash & Donations
E. Donor Acknowledgements
F. Fundraisers and Controls
G. Cash Out-Controls for Paying Bills & Credit Cards
H. Check Signers
I. Paying Bills 
J. Automatic Drafts
K. Petty Cash
L. Gift Cards or Prepaid Store Cards
M. Credit Cards
N. Other Payment Controls to Consider
O. Payroll
P. Summary

II. What is Special About Accounting for Churches?
A. Accountant's Speak—Modified Fund Accounting
B. Accounting 101
C. Cash vs. Accrual Accounting Methods
D. Chart of Accounts
E. Naming the Accounts
F. Basic Bookkeeping
G. Reporting Differences
H. Differences in Terminology
I. Summary

III. How do I Select an Accounting System?
A. Spreadsheets
B. Off-The-Shelf Accounting Software
C. Church-Specific Accounting Software
D. Online Accounting Packages
E. Summary

IV. Contributions—Part I: Receiving and Recording
A. Internal Controls and Written Policies
B. Counting the Weekly Offering
C. Example Collection Count Sheet
D. Offering Envelopes
E. Making the Deposits
F. Recording Donor's Contributions
G. Credit Card Donations
H. Summary

V. Contributions—Part II: Acknowledging
A. Cash Contributions
B. Stock Donations
C. Quid Pro Quo Donations
D. When You Do Not Need Disclosure Statements
E. Non-Cash Contributions
F. Gifts of Autos, Boats, and Airplanes
G. Summary—For a Qualified Deduction

VI. Contributions—Part 3: Other Topics
A. Gifts to Specific Individuals
B. Donated Labor/Services
C. Discount Donations
D. Checks Written to Another Charity
E. Summary

VII. Benevolence Fund
A. Requirements
B. Discretionary Benevolence Funds
C. Benevolence for Employees
D. Earmarked Benevolence Contributions
E. Disbursement Procedure
F. Written Benevolence Policy Example
G. Summary

VIII. Paying the Bills
A. Terminology
B. Approving and Paying the Bills
C. Scams
D. Church Insurance and Contracts
E. Entering Data
F. Allocation of Expenses
G. Bills Drafted out of the Bank Account
H. Credit Card Payments
I. Petty Cash Replenishment
J. Summary

IX. Reimbursement Policies and Procedures
A. Setting up a Reimbursement Policy
B. Example of a Reimbursement Policy Resolution
C. Employee Business Expenses to be Included
D. Reimbursing the Expense
E. Advance Payments
F. Ticketless Airline Expenses
G. Ramifications of Not Following the Policy
H. Inability to Reimburse a Valid Expense
I. Summary

X. Payroll—Part I: Basic Steps
A. Terminology
B. Forms & Publications 
C. Setting up the Payroll
D. Summary

XI. Payroll—Part II: Calculating & Filing
A. Tax Table Method
B. Percentage Method
C. State Tax Withholding
D. FICA—Social Security & Medicare Taxes
E. The Employee's Payroll Check
F. Posting the Payroll Expense
G. Other Taxes
H. Payroll Tax Deposits
I. Payroll Tax Filings
J. Year End Filings
K. Summary

XII. Payroll—Part III: Ministers and the IRS
A. Who is a Minister (for Tax Purposes)
B. Employee or Independent Contractor
C. Housing or Parsonage Allowance
D. Income to be Reported by a Minister
E. Minister's Business Expenses
F. Exemption for Self-Employment Tax
G. Tax Filings for Ministers
H. Designing a Minister Compensation Package
I. Summary

XIII. Budgeting for Churches
A. The Budget Process
B. Example Budget Spreadsheet
C. Monthly Budgeting
D. Forecasts
E. Cash-Flow Analysis
F. Summary

XIV. Month-End Financial Requirements
A. Monthly Processes for Complete Financials
B. Bank Reconciliation
C. Investment Account Reconciliations
D. Generate Reports
E. Summary

XV. Year-end and Audit Issues
A. Forms W-2 and W-3
B. Form 944, Employer's Annual Federal Tax Return
C. Form 1099
D. Form 1096
E. Year-end Donor Acknowledgements
F. State Filings
G. Audit Needs
H. Summary

XVI. Administrative Issues
A. Basic Steps to Start a New Church
B. Church By-Laws
C. Organize the Office
D. Record Retention
E. In Conclusion

XVII. Appendix
A. Example Chart of Accounts
B. Month-End Checklist
C. IRS Website Addresses
D. List of State Websites

 

Index
A
access to the financial records 9
accounting controls (see: internal accounting controls) 
accounting methods 20
accounting principles 16, 164
accounting software 27, 32, 108
accounts payable aging 164
accrual basis of accounting 15, 20
acknowledging contributions 7, 42, 157, 162, 165
admission tickets 8, 47
advance payments 86
airplanes (see: vehicles donated)
Albert, Lynne 71
allocation of expenses 74
Aplos 32
appraisal 52, 53, 56, 172
approval process 10, 11, 71
assets 19, 21, 168
audit committee 3, 163, 165
audit guide 163
audit issues 157
auditor 3
automatic drafts 11, 70, 147
automatic withdrawals 147
automobiles 35, 54, 57

B
background check 99
balance sheet 25
bank reconciliation 147
benefits-employee 113, 131, 133
benevolence contributions 59, 64, 65, 67
benevolence fund 64
benevolence policy 64, 65, 68
bills, paying 70
Boatright, Vickey 29, 32, 35, 43, 53, 66, 69, 73, 74, 79, 86, 121, 123, 132, 135, 137, 141, 145, 154
boats (see: vehicles donated) 
budget 
budget process 139, 146
budget spreadsheet 141
monthly budget 143, 145
by-laws 166, 167, 171

C
cash acknowledgement statement 43
cash basis of accounting 20, 28
cash flow analysis 146
cash requirements 13, 146
chart of accounts 15, 21, 22, 70, 174
check register 13, 23
check signers 4, 6, 9, 76
checklist 175
church-issued receipt 42
church-owned parsonage 119
church-specific software 32
collusion 5
contemporaneous written acknowledgement 51, 55
contracts 72, 141, 165
contribution receipts 52
contribution acknowledgment 42
contributions 35, 42, 51, 59
controls for paying bills 9
controls for receiving cash 5, 35
controls to protect your staff 4
corporate resolutions 6
credit card charges 77, 147, 175
credit card donations 40, 149
credit card payments 70, 75
credit card receipts 75
credits 23, 24
D
de minimis 47, 48
deacons 117
debits 23, 24
deductibility of contributions 42
designated gifts 38, 63
designated programs 19, 152
disbursement procedures 68
disclosure requirement 49
disclosure statements 45, 47
discount donations 62
discount fee 40
discretionary fund 66
documentation required 10, 35, 50, 65, 82, 87
donated labor 61
donated materials 61
donations from local businesses 62
donations online 149
donor acknowledgement statement 7
donor acknowledgements (see: acknowledging contributions) 
double-entry accounting system 23
E
EFTPS (electronic federal tax payment) 90, 107
EIN-Employer Identificaation Number 92, 96
electronic federal tax payment 90, 107
electronic information 172
electronic payments 14, 106
electronic payments received 6
employee business expenses 80, 117, 125
employer taxes 90
equity accounts 28
equity allowance 132, 133
exemptions 89, 98
F
fair market value (FMV) 45, 48, 51
fair rental value (FRV) 119
forecast 144, 145
forecast spreadsheet 145
form (see:IRS Forms)
freechurchaccounting.com 29, 32, 69, 73, 121, 135
freechurchforms.com 167, 168, 169
fund accounting 15, 16, 18, 19
fund worksheet 74
fundraisers 8, 47, 146
G
GAAP (generally accepted accounting principles) 15, 16
general ledger 17, 19, 28, 40, 73
good faith estimate 46, 49
governing boards 2, 9, 20, 147
H
handbook 35, 172
hiring employees 89, 91, 92
historical trends 140, 143, 173
housing allowance 118, 120, 123
mortgage 120
resolution 121, 122
qualifications 118
I
identity theft 162
income statement (see: reports - profit & loss statement) 
incorporating 166, 168, 171
independent contractor 94, 117
individuals, gifts to (see: benevolence contributions) 
insubstantial gifts 47
insurance 4, 19, 72, 106
intangible religious benefits 45, 48
intent 118, 125
internal accounting controls 1, 9, 165
credit card transactions 13, 76
fundraiser 8
gift cards or prepaid store cards 12
paying bills 9, 10
payroll 14
petty cash 12, 163
receiving cash 5, 8
inurement (see: private inurement regulations) 
investment account reconciliations 151
IRS Forms 174
Form 1040-ES, Estimated Tax for Individuals 127
Form 1096 161
Form 1098-C 55, 56, 57
Form 1099 160
Form 4361 126
Form 8282, Donee Information Return 53
Form 8283 56
Form 941-Employer's Quarterly Tax Return 108
Form 944, Employer's Annual Federal Tax 157
Form I-9 
Form W-2 and Form W-3 157
IRS Publications 
Publication 14 -Circular E 
91, 100, 105
Publication 4302, A Charity s Guide to Car Donations 57
Publication 4303, A Donor s Guide to Vehicle Donations 54
IRS website list 184
itemized expenses 117, 125

J
job-related expenses 131, 133
job-related reimbursements 135
journal entry 24, 105
L
labels 169, 170
leftover funds 86, 87
legal counsel 73
legally-binding 168
liabilities 19, 20, 21, 23, 25, 151
licensed minister 117
living expenses 132
love offerings 116, 125
M
materially improve 57, 176
mileage rates 82
mileage reimbursement form 84
minister 130
compensation package 131
definition of 116
exemption for self-employment 126
income to be reported 124
love offering 125, 135
minister's business expenses 125
ministers payroll 116
retired ministers' housing 124
self-employment taxes quarterly 127
tax filings for ministers 126
W-2 for the minister 127
modified cash method 20
modified fund accounting 15
money received during services 5
money received through the mail 6
month-end financial requirements 147
month-end checklist 156, 183
monthly processes 147
N
naming the accounts 22, 23
national disaster 67
net assets 16, 19, 151
non-cash contributions 50, 61,163
disagreement with the estimate of the donation 50
non-consumables 81
non-deductible amount 46
non-deductible gift 61
non-publicly traded stock 52
non-reimbursed expenses 116
nondeductible contribution 60
O
off-the-shelf accounting software 32, 74
online accounting packages 32
ordained minister 117, 126
organize 83, 166, 169
P
parsonage allowance (see: housing allowance) 
pass-through 59, 64
pastor-administered discretionary fund 
paypal 6, 7, 40
payroll 
calculating 100
Circular E 91, 100, 105
filing 100, 111
ministers 116
payroll records 99
payroll tax 105, 106, 108, 111, 164
payroll tax deposits 106
tax filings 108, 126
tax table method 100, 115
year-end filings 112
penalties 1, 58, 87, 106, 127, 137
per diem 87, 113
percentage method 100, 101
permanently restricted net assets 17
petty cash fund 11, 12, 70, 76
petty cash replenishment 76
Pierce, Terressa 167, 168, 169, 171
postdated check 36
postmarked contribution 39
private benefit regulations 135
private inurement regulations 135, 137
procedures 1, 2, 8, 12, 35, 65, 68, 77, 165, 167
purchases 9, 48, 49, 50, 146
Q
quarterly tax return 108
Quickbooks® 20, 22, 27, 28, 32, 73, 74, 143, 151, 153, 156
Quickbooks® for Churches & Other Religious Organizations 22, 28, 74
quid pro quo donations 45, 46
R
ramifications of not policy 87
receivables-tithing 155, 164
record retention 166, 171
reimbursement policy 78
reimbursement policy resolution 79
related party transactions 3
replenishing the petty cash fund 77
reporting differences 25
reports 
accounts receivable report 155
balance sheet 25, 151, 163
profit & loss comparison to budget 154
profit & loss statement 25, 29
statement of activities 25
statement of financial position 25, 28
resolutions 6, 78, 79, 86, 119, 121, 122, 178
restricted funds 15, 17, 25, 171
retired ministers 116, 124
S
sales tax 163, 167
sales tax exemption 167
scams 71
scanner 5, 6, 39
schedule c 81, 117, 129
schedule se (see: minister) 
selecting an accounting package 29
self-employment taxes 90, 116, 117
separation of duties 2, 4, 35
SFAS (Statement of Financial Accounting Standards) 16
software 27, 32, 34
sold donated vehicles 56
spreadsheet package 32
spreadsheets 29, 34, 86
state website list 187
start a new church 166
statement of activities 25
stock donations 44
T
tax exempt status 135, 137, 141
taxable wages 90, 99, 101, 102
taxpayer identification number 56, 57, 96
temporarily restricted net asset 15, 17
terminology 20, 27, 70, 89
timesheets 14
timing of contributions 44, 86, 140, 148
title 73, 77, 79, 114, 123, 157, 161
transfer stock 44
transmittal forms 91, 112, 161
transposition 150
two percent floor 125
U
un-reimbursed expenses 61, 118
unemployment taxes 90, 106
unrealized gain or loss 151
unreimbursed employee 62, 125
V
vehicles donated 54, 55, 56, 57
vendor invoices 9
volunteer mileage 85
volunteer tracking 32
volunteers travel advances 86
voucher-style check 10
W
waivers 72
web addresses for irs forms 184
web addresses for state departments 187
website donations 40
withholding 89, 90, 98, 100
withholding allowances 98, 100, 101
www.accountantbesideyou.com 28, 86, 92, 163, 173
www.ftc.gov 72
www.gsa.gov 87
www.irs.gov 82, 96, 108, 127, 130
Y
year-end donor acknowledgments 157, 162, 165
year-end filings for ministers 129


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