If one source falls through or some of your expenses are higher than expected, it’s easier to recover when you don’t have all of your funding eggs in one basket. And, if everything goes to plan, you can use your additional revenue to create an emergency fund or save for long-term church growth. A church’s Chart of Accounts is simply a list of accounts and categories that help to organize its financial transactions. “List” doesn’t sound nearly as spiffy as “Chart of Accounts” so I can understand why they named it that. Your financial reports (such as a Statement of Cash Flows, for example) will be organized according to the accounts in your Chart of Accounts.

Statement of Functional Expenses

Icon Systems, Inc. has been a leader in church management software since 1992. We develop high quality software for religious organizations, from church plants to denominational offices. When the time comes to pay the bill, the bookkeeper does an entry to cut the check. They credit the checkbook and debit the accounts payable (not the expense account). Essentially, the dates of the expense and when the cash leaves the organization can be in two different months. ChurchBooks3 is Church management software (ChMS) designed to Bookstime help churches and religious organizations manage various aspects of their operations.

• The Statement of Functional Expenses is an essential financial report for nonprofit accounting.
• When you use your debit card or withdraw money, you’re lowering the amount of money the bank owes you.
• But no matter which name you use, it’s the accumulation of any surpluses (profit) that your organization has built up over time.
• Commonly, churches use a “missions” or a “capital” fund to set aside dollars out of the annual budget for various projects.
• But, you might want to have breakroom supplies or office equipment listed next after office supplies.

Benefits of the Statement of Functional Expenses

• For the latter, there are many options available, including ones specifically designed for religious organizations like churches and non-profit organizations.
• Work with the church accounting specialists at Jitasa to refine your financial management practices.
• Learn more about our integrations (you can connect with 2000+ applications and more!).
• A chart of accounts is a helpful and pivotal tool in tracking a church’s financial activity, from tithes and offerings to payroll and other costs.
• Your church’s operating budget is its master financial plan for a given fiscal year.

Liabilities are used extensively when an organization is using accrual based accounting. We discuss these two methods in the third part of this series as one method greatly affects the liabilities and the other doesn’t. Your financial system should flow directly from your mission or purpose statement.

Statement of Activities vs For-Profit Organization’s Income Statement

An important rule for church accounting church chart of accounts is to delegate accounting responsibilities. Revenues are where all the organization’s income enter into the organization’s accounting system. Liabilities accounts represent the different types of economic obligations of an entity, such as accounts payable, bank loans, bonds payable, and accrued expenses.

For example, if your organization has 40 expense accounts for five locations, three countries, and 12 departments, that creates 7,200 account code combinations. This usually happens with a linear (or unified) chart of accounts structure, as it struggles to reflect all the transactional information needed for a larger nonprofit. Because the chart of accounts impacts nearly every task the finance team needs to perform, its structure should align with your mission and internal processes. It’s also a good idea to work with a nonprofit accountant with expertise in your sector to set up your COA and invest in smart software that is easy for your team to use. A linear chart of accounts isn’t the only COA option available trial balance for nonprofits.

You’ll see that under “Assets,” all current assets (including cash and accounts receivable) start with 1, and non-current assets (including property and equipment) start with 2. Nonprofits must report expenses by function (program, management, fundraising) on Form 990, which can be achieved through a detailed COA. This should look at how your financial activities, including investments and operational expenses, impact your cash flow.

Form 990 Filing: Your Essential Guide to Nonprofit Taxes

You should now have a good starting point for understanding and creating a Chart of Accounts for your nonprofit. If you’re ready to create a Chart of Accounts for your nonprofit, you can start with this template, made for you to customize by The Charity CFO. For example, you don’t need separate accounts for different types of office supplies (pens, paper, markers). But, you might want to have breakroom supplies or office equipment listed next after office supplies. Please note that this is a very basic chart of accounts and the actual might include many more accounts depending on the complexity and size of the church.