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.