A contribution to a church is a sacred item and should be managed carefully. The story of the Widow’s mite reminds those of us who are in charge of managing church finances that even the littlest amount is important to the Lord. This means that you should have some form of system in place in order to carefully track these donations.

Typical donations to churches include money and stocks; however, occasionally someone will donate a physical item of value like a painting or an animal. A good church contribution software package can help you keep track of all of these donations.

Why are contributions so difficult to manage?

This is a common question asked by those who are just entering the church accounting scene. From an outsider it would seem pretty simple. The church receives money, makes note of it, and deposits the money in the bank. It seems like by simply monitoring the church’s bank account, one would be able to keep track of all of the donations. Unfortunately managing church contributions is not this simple.

When a donor pledges an asset to the church, he/she will often only do so under certain circumstances. The donor might say that the money can only be used for feeding the poor or rebuilding the old church. Donations like this need to be tracked in a special purpose fund. Unfortunately banks are not willing to keep track of all of this for you. Some people may consider at this point creating two accounts at a bank: one for general funds (donations without any restrictions) and one for special purposes. Problem solved, right? Not exactly because Sue’s contribution was to be used specifically for maintenance of the Church, and John’s contribution was to be used for the summer camp, and Harold’s for the missionaries in Africa. You can see how this quickly spirals out of hand. A good church contribution system will help you keep track of these different donations.

Features included in Church Contributions Software

Not all software packages are created equal but most of them will have the following features: funds setup to help you manage the different contributions you receive, a place to track donor information, reports at the end of the year that summarize how much a donor has contributed, and an automatic letter-generator that will send out a statement to the donor for tax purposes. Depending on the size of your church, the letter-generator can be a real time saver.

Remember that church contributions are acts of faith and should be managed carefully, preferably with some form of church accounting software. Careful management is necessary due to the nature of restrictions with contributions.

A church just like a business needs to account for its finances. However the purposes of a church are vastly different than that of a business. While a business is focused on making money, a church is focused on making the world a better place and helping people be happy by believing. A business receives money from customers while a church receives money from donors. This last difference causes churches to use something known as fund accounting.

When a business receives money from a customer, the business has complete discretion over how the money will be used—there are no strings attached. However, many times when a church receives money from a donor there are strings attached. The donor will specify how the church can use the money.

Normal accounting software is not setup in a way to track these donor-specified contributions. That is why many church leaders in charge of contributions use church bookkeeping software. This type of software is setup to be able to track the different types of contributions.

Bookkeeping software for churches will help you categorize donations into three general areas: unrestricted, temporarily restricted, and permanently restricted funds. If you receive a general donation from a member (with no strings attached), then you can easily enter the donation into the proper area of the bookkeeping software.

Temporarily restricted funds are probably the most common type of restriction that you will run into at your church. These are usually incidences where donors specify that they want the money to be used towards reconstructing the church building or building the new church baseball diamond. With a good church bookkeeping software package you can easily keep track of all of these contributions as well as their donor-specified restrictions.

Permanent restrictions are uncommon for smaller churches, but they happen often enough in large churches. These are contributions where the member outlays a large principle amount that cannot be used, but the interest on the principle can be used. You can keep track of these types of contributions in the software.

Another benefit of using some form of accounting software designed for churches is that they come ready to print out donor statements and summarized donor contributions at the end of the year. This means you can automate the process of sending out letters to your donors letting them know how much they can deduct for tax purposes. In addition it will help you keep track of who is donating the most and towards what items.

Businesses are very different than churches, but this doesn’t mean that a church should not put emphasis on managing its finances. A good software package can help you do just that.

Back to the Basics

Before accounting became all about following rules and regulations, accounting was used to track key information. This information could be about anything. A farmer may have used accounting to track how much milk his cows were producing. A banker to track the money going in and out. An army general to track casualties. This was accounting in its most beautiful form. So useful, and so uncomplicated. Unfortunately in order to achieve comparability amongst different companies, accounting has become tainted. The numbers have to be squeezed so that they are in accordance with certain standards. They become useless, and this is when accounting becomes GAAP .

Church accountants would do well to remember that the main reason they are doing accounting is to track the useful information of their church. The good news is that you, the church accountant, get to decide what is useful. It may be church attendance, church donations, number of conversions, etc..

Fund Accounting

Churches require fund accounting. To understand fund accounting, it is helpful to understand what the word “fund” means. Fund = a reserve of money set aside for some purpose. Fund does not mean a separate bank account. In fact you can have one bank account with an unlimited amount of funds.

Why do Churches Require Fund Accounting?

When you give your money to Wal-Mart in exchange for goods you have no say over what Wal-Mart does with that money. However, when you give your money to a Church, you can tell them that your money should go towards missionary work, feeding the homeless, or building new churches. In fact, most churches have a missionary fund, a service fund, and a construction fund.

The Need for Church Accounting Software

Once you understand that Wal-Mart’s accounting is different than a Church’s you realize that special software is needed for church accounting. Church accounting software should make fund accounting simple and easy.

First of all, you might note a few good things right from the get go: (1)the website is an http(s) (that “S” is important and means that the company spent the money to be more secure–a good sign (2) they are secured by Geotrust and (3) the website is professional and easy to navigate. If you see these three things on any online website, it is extremely unlikely that you will be scammed.

Next, Clarity offers free church accounting software for 30 days (a demo version). This is a sign that they are confident in their church accounting software. This is the exact opposite of those “miracle weight loss pages” that are 100 pages long, and keep saying that they will tell you the secret to weight loss once you get to the bottom of the page (in the meantime you have to read all their propaganda, usually in the form of success stories). I’m sorry if I’m getting on a tangent here, but I can’t stress this enough, please avoid sites that are all propaganda and offer quick and easy solutions.

Clarity’s 30-day free church accounting software trial is better than most because they don’t require a credit card number before you can use the trial. Many companies give you a free trial, but ask for your credit card number in hopes that you will forget. Once your trial time is up, they start charging you (very annoying).

Functionality

The Good: Keep in mind we were using the demo version as we tested their online software. The software has all the financial accounting information any church would need. The software is very intuitive. When you tell the software to do something, it does! The layout and reports are very aesthetically pleasing.

The Questionable: When I clicked on the graphical reports, it kept sending me to some random web page that hand nothing to do with Clarity Accounting (a little frustrating, but again, maybe this is the demo version).

Keep in mind that this is online church accounting software which comes with the benefits of being able to use it anywhere, but also the security issues that come with online software.

We advise that you do some of your own research before making any purchase of church accounting software but Clarity Accounting appears to be a good product for a low price of $10 a month.

Feel free to sound off on any Church Accounting Products in the comment box.

Church Management Systems Versus Church Accounting Software

It turns out that some software exists that does just about everything for your church. These software packages are usually entitled “Church Management Software.” These management softwares take care of membership issues (attendance, converts, etc.). They also manage the finances at your church (offerings, taxes, etc.). We’ve even seen some church management software that has features that track upcoming events in your church–choir rehearsals, dinners, and church services.

On the other hand we have seen websites that sell their wares separately. For example they sell what they call a “People Suite” that will keep track of membership or a “Financial Suite” that keeps track of finances. It is important to note that these companies are selling them separately: if you buy the people suite you aren’t getting any financial suite products. This can be compared to buying Microsoft Word separate from Microsoft Excel. They don’t exactly do the same thing.

So our word of caution is to make sure that what your buying performs all of the functions you want it to. We tend to lean towards the One-Package-Does-it-all solutions, but we can see some reasons for buying separately (perhaps better functionality).

Before you make your purchase, make sure to double, nay triple check to verify that your computer(s) meet at least the minimum requirements for the software. There is nothing worse than spending money on software, returning back to your computer, placing the CD in the computer, and then finding out that your computer can’t handle the software. Please make sure you meet the minimum requirements for any software you buy for your church.

Unfortunately many companies that offer church software fail to place the minimum requirements on their websites. If you find yourself in this situation, then you have three options: (1) Gamble and purchase the software anyway hoping that your computers will have what it takes–not recommended (2) Contact the company via phone or email (3) Go to a different website. Gambling is never recommended

After searching the Internet, we’ve found that most church accounting software requires at least 64-256mb of ram. This may not seem like a lot to some people, but many churches don’t have a big budget to buy top end computers.

We hope we have saved you some time in your quest to purchase church software. Feel free to leave any comments about information you may have acquired.

Because money is sometimes a sensitive area within the Church, it is important to assure that your members’ donations are being accounted for. Church accounting software can help you keep better track of where these donations are going.

You can use church accounting software to give annual or semi-annual statements to your members. Giving these statements increases trust with your members and can lead to further donations. You can also use your church management software to track your expenditures. Most software systems will display this information in a way that will allow you to make better decisions…

Decision making is critical when spending members’ contributions!

1. Internet Security Issues

A hacker could maliciously enter your online database that contains all of your important church management information and steal or delete the information. We won’t get into the technical jargon of how they might accomplish this, just know that they can.

2. Your Online Software Company Goes Out of Business

If you have your information stored online through one of the many online software systems, then you run the risk of your online software provider going out of business and trashing your data.

We’re not saying we’re completely against having all of your church management data online, but we recommend caution when this information is online. Always have a physical backup of your church accounting software data.

As with most products, if you spend a little more it is because the product is a little better. The trick is finding out what your church’s needs are. You might ask yourself, “What is it that I need to track?” You may be wanting to track your membership from week to week, or how much offerings are given on a monthly or yearly basis. More complex questions might be, how much taxes have I withheld for the paid clergy or how much will I need to withhold? The bottom line is to find out what exactly you need the software for before buying it.

Many church accounting services provided by companies will want to charge you on a monthly basis. This is becoming more common in almost all businesses. Prices start around $30 a month and go as high as $200 a month. We wouldn’t recommend paying more than that for your church accounting software. If you dislike monthly fees, then you can buy quickbooks online for about $200 over at Microsoft.

The best of luck in your hunt for your church management software. If you have any additional pricing information, feel free to post it in the comments box below.

As is always our policy, we do not endorse one church software system over another. We simply want to provide you information.

• Sunday Software

First of all, if you started the journey for your church’s accounting system by typing into google “free church accounting software” then you likely ended up on a sub-domain of sundaysoftware.com. SundaySoftware does not make accounting software; however, they do provide links to other sites that do.

• Churchtrac.com

The good new about churchtrac is that they actually do offer free church accounting software. The bad news is that the software is only for small churches. After some investigation we learned that small churches means less than 100 people.

**** Update July 15, 2010***

• Gnucash.com

Gnucash offers some software that could be used as free church management software. This software was originally built for businesses which may mean that you need to tweak it a bit for it to work for your church. It is open source and is considered by many as the best free accounting package available.

****Update April 26 2010 ****

Vickey over at freechurchaccounting.com has some free spreadsheets that can be an excellent solution for those of you looking for a completely free way to perform your churches’ accounting.

Synopsis
If the church that your managing has less than 100 people or if you don’t mind having some advertisements floating around the screen then you just may be able to find some free church accounting software. Otherwise, it appears you will have to fork out the cash to get the software.

**** Update June 19, 2009 ****

After thinking more about this topic, I have a few other recommendations if you are looking to save some money. If your church’s accounting systems is relatively simple then you could probably get away with using Microsoft Excel. Although most thoroughbred accountants will scoff at you for not using some sort of specialized software. And if you want to go completely free, then why not try Open Office. I know a lot of Non-Profits actually use this software and it does a decent job. Although it might take you a while to get over some of the annoying little quirks.