Accounting for a non-profit institution, like a church, is a different type of accounting than would be used for a business. There are differences that must be taken into account and explained in terminology and procedures. This article will look at just a few of them.
Things You'll Need
- Journal paper if handling the accounting on paper
- QuickBooks for Non-Profits or similar accounting software
Writing Church Accounting Procedures
Make a distinction between "designated" or "restricted" funds and "non-designated" or "unrestricted" funds. The type of accounting for any non-profit institution is known as "fund" accounting. Fund accounting creates a distinction between designated or restricted funds and non-designated or unrestricted funds. In a business, all revenues fall into a general account out of which bills must be paid, etc. But a church does not have revenues or customers; it has donations.and donors. Unlike a business where customers pay you, a church donor may designate which project his donation is to go to. For example, a donor may give $15,000 toward the purchase of a new church van. That is restricted to the church van account, and may not be used for general fund purposes.
Create a separate fund account for each restricted project being donated to within the church. It is not necessary to open a separate bank account for each project, as long as the records reflect each account individually and the funds are never mingled with the general fund account.
Create a budget based on the regular giving of the members of the congregation. Regular giving includes any tithes (10 percent of a member's income), and offerings donated weekly or monthly. The budget must reflect salaries of staff, building payments for rent or mortgage, utilities, insurance, etc. All fixed expenses must be able to be met by the regular giving so that the restricted projects (a new church van, a new building, etc) won't jeopardize the immediate needs of the church.
Fill out the proper IRS form (Form 1023) to request approval for your church having 501c3 status as a non-profit institution. The paperwork may take several months to be approved, but you may continue to operate as a non-profit organization until you receive the approval, provided all sales taxes are paid for purchases and you file the Form 990 on time. If you use the new IRS cyber assistant, the fee to complete the form is $200 instead of the $400 you would pay for filling it out and mailing it in.
Choose the method you will use in payments to church staff. The unique position that ministers are in allows them to choose whether to be considered an employee of the church, and thus have taxes taken out of their pay, or to be considered an independent contractor and be responsible for their own taxes. This puts the church accountant in the unenviable position of having to explain the good and the bad with each option.
Familiarize yourself with the procedures for housing allowances, contributions, FICA taxes for ministers, and more. Use IRS Publication 517.