Part 1: Step By Step Guide to Church Accounting

Part 2: Start to Finish Guide for Using QuickBooks for Your Church

Instructions: Simply click on the links above, wait for them to load in your Internet browser, and then click print. Or you can right click on the links above, save them to your computer, open the PDF files, and then print them.

Let me know if you need any help.

“I know how overwhelming it can be to manage church finances. That’s why I created the QuickChurch Accounting Course. Hope to see you in class.”

]]> http://www.churchaccountingsoftwareguide.com/church-accounting-front-page/feed/ 0 http://www.churchaccountingsoftwareguide.com/full-table-of-contents/?utm_source=rss&utm_medium=rss&utm_campaign=full-table-of-contents http://www.churchaccountingsoftwareguide.com/full-table-of-contents/#comments Fri, 08 Jun 2012 16:16:08 +0000 Nate W. http://www.churchaccountingsoftwareguide.com/?p=1324 In order to give you an idea about what’s in my new course I’ve listed the table of contents here. You can also take a look at this page to see what’s inside the course. I think it will be helpful for a lot of churches.

Book 1: Step-by-Step Guide to Church Accounting

Legal Disclaimers (Please Read Before Starting Lessons)

Part I: Obtaining a Vision of your Church’s Accounting System

Lesson1: Introduction and Legal Disclaimers

Lesson 2: The Goals of Church Accounting

Lesson 3: The Church Accounting Cycle of Doom

Lesson 4: Transactions Happen

Part II: Learn How to Create Journal Entries for Church Transactions

Lesson 5: Introduction to Journal Entries

Lesson 6: Debits and Credits

Lesson 7: Common Journal Entries for Churches

Lesson 8: Revenue and Expense Journal Entries for Churches

Lesson 9: Closing Journal Entries for Churches

Lesson 10: What are Ledgers?

Lesson 11: Understanding and Creating a Trial Balance

Lesson 12: How to Make Adjusting Journal Entries

Part III: Everything You Need to Know about Fund Accounting (and then some)

Lesson 13: Two Types of Fund Accounting? Understanding Fund Accounting

Lesson 14: How to Account for Restricted Contributions

Part IV: Church Financial Statements

Lesson 15: The Statement of Financial Position

Lesson 16: The Statement of Activities

Lesson 17: Cash Flow Statement

Lesson 18: Year End Church Contribution Statement

Book 2: Start to Finish Guide for Using QuickBooks for Your Church

Part I: Setting up QuickBooks for a Church

Lesson 19: Introduction/Why QuickBooks?

Lesson 20: Setting up QuickBooks for your Church

Lesson 21: Chart of Accounts

Lesson 22: How to Set Up a Chart of Accounts for your Church

Lesson 23: How to Track Programs and Funds with QuickBooks

Part II: Entering Journal Entries and Creating Financial Reports in QuickBooks

Lesson 24: How to Enter Journal Entries (Transactions) in QuickBooks

Lesson 25: 18 Transactions Covered in this Book

Lesson 26: Entering Donations the Right Way

Lesson 27: Entering Temporarily Restricted Donations into QuickBooks

Lesson 28: Basic Reporting

Lesson 29: Handling Permanently Restricted Donations

Lesson 30: Managing Pledges

Lesson 31: Pledge Receivable Reporting

Lesson 32: Entering Bank Deposits in QuickBooks

Lesson 33: Long Term Assets and Depreciation

Lesson 34: Entering Bills and Expenses (Direct Disbursement Method)

Lesson 35: Entering Bills and Expenses (Billing Method)

Lesson 36: Entering Program Expenses (Temporarily Restricted)

Lesson 37: Payroll

Lesson 38: How to Allocate Expenses to Programs

Lesson 39: Creating a Year-End Donor Statement within QuickBooks

Lesson 40: Wrapping Up

Appendix: SFAS 116 and 117 GAAP Reporting with QuickBooks

Lesson 41: Introduction

Lesson 42: Creating a GAAP Compliant Statement of Activities in QuickBooks

Lesson 43: Creating a GAAP Compliant Statement of Financial Position in QuickBooks

Return back to the page about what’s inside the course. 

No part of these lessons or accompanying files may be reproduced or transmitted in any form, electronic or otherwise, by any means without the prior written permission of the publisher.

These lessons are presented to you for informational purposes only and are not a substitution for any professional advice. The contents herein are based on the views and opinions of the author and all associated contributors.

While the author and all associated contributors have made every effort to present accurate and up-to-date information within these lessons, it is apparent that accounting standards and technologies rapidly change. Therefore, the author and all associated contributors reserve the right to update the contents and information provided herein as these changes progress. The author and/or all associated contributors take no responsibility for any errors or omissions if such discrepancies exist within this document.

The author and all other contributors accept no responsibility for any consequential actions taken, whether monetary, legal, or otherwise, by any and all readers of the materials provided. It is the reader’s sole responsibility to seek professional advice before taking any action on their part.

Readers’ results will vary, based on their skill level and individual perception of the contents herein, and thus no guarantees, monetarily or otherwise, can be made accurately. Therefore, no guarantees are made.

Links to websites within these lessons may be affiliate links. The author may be compensated for purchases the reader makes on those websites.

Notice: The information provided in these lessons and in the comments and emails associated with these lessons is not meant to substitute for the advice and covered opinions of a qualified tax professional. The materials contained in these lessons, comments, and emails are provided for general information purposes only and do not constitute legal or other professional advice on any subject matter. The information contained within these lessons, comments, and emails does not fall within the IRS definition of a covered opinion; therefore, it cannot be used to avoid IRS penalties.

The reports we have created together are a very good start, but preparing for an audit is an enormous amount of work and nigh impossible without a CPA.

The next section of this book is designed for accountants and for those who already have a good grasp on the rest of the materials within this book. In the next section I’ll be showing you how to make the reports we’ve generated in 1^st Church look like the reports found in FAS 117 (pages 49-58).

Next Lesson

FAS 117

The main push in FAS 117 is to classify net assets according to the three categories: unrestricted, temporarily restricted, and permanently restricted. Other than that, the statement of financial position looks just like a normal balance sheet.

FAS 117 Example:

Getting the net asset account amounts right might seem difficult, but it’s really not bad if you have your system set up correctly (like we have done in this book).

Using 1^st Church as an example, you simply take the information from the statement of activities and make a few journal entries (shown further below). Remember that the missionary and youth programs are simply temporarily restricted funds.

If I pull up the standard balance sheet in QuickBooks (Reports >>> Nonprofit Reports >>> Statement of Financial Position) and adjust the reporting date to January 3^rd of the next year then I’ll see that QuickBooks automatically allocated all my net income to unrestricted net assets (as shown below). It’s important that you change the date or QuickBooks will simply show you Net Income in the Equity section (instead of unrestricted net assets). This is because at the end of the fiscal year QuickBooks automatically closes out net income to retained earnings (unrestricted net assets) for you.

The problem with the report above is that QuickBooks put all the income for the year into unrestricted net assets instead of allocating it out to unrestricted, temporarily restricted, and permanently restricted. To fix this you (or a qualified accountant) will need to make an allocating journal entry. We’ll go ahead and make this journal entry for 1^st Church.

According to the information we generated above 1^st Church should have $8,000 in unrestricted net assets, $6,050 in temporarily restricted net assets, and $10,000 in permanently restricted net assets. The journal entry would look like this:

Here’s how it would look in QuickBooks. I would suggest making this journal entry at the end of the reporting period (in this case 1/1/2013).

Your statement of financial position should look like the following after the adjustment.

Conclusion

In this lesson we learned how to create a GAAP-compliant statement of financial position within QuickBooks. Using QuickBooks, you will have to make an allocating entry during the closing procedures at the end of the year.

That wraps up the appendix of this book. As mentioned in Lesson 40 of this book, this book is a living document. If you’d like to see something else discussed please head over to Lesson 40 and mention it there.

Statement of Activities

Remember that the driving force behind SFAS 116 and 117 is the idea to classify contributions according to three categories: Unrestricted, Temporarily Restricted, and Permanently Restricted.

The statement of activities that we’ve generated for 1^st Church meets this requirement. Our general fund is the unrestricted category. Our missionary and youth programs make up the temporarily restricted category. Our building endowment makes up the permanently restricted category.

If you’re being audited, then your accountant or auditor might want to change the look of the reports we’ve created a little bit so that they look more like the report he/she wants, but basically you’re already compliant. You (or your CPA) can easily modify the reports by exporting them to Excel.

Exporting a Report in Excel

Within QuickBooks open the report you want exported. Then click on Excel >>> Create New Worksheet.

Net Assets Released from Restriction

The FASB seems to prefer that you show all contributions during the year that were at one point restricted, but now have met their restriction requirements and can be released. Take a look at their example statement of activities in SFAS 117 below:

This “Net assets released from restrictions” account is simply moving contributions from the temporarily restricted category to the unrestricted category (when the restriction is met of course). The framework I’ve set up in this book allows for you to create this type of report (although I personally don’t find the FASB reporting here that useful). Rules are rules right?

Example of Net Assets Released from Restriction

Let’s take a look at how this account would be used within 1^st Church.

Remember that during the year $6,000 worth of contributions was given to the missionary program (these contributions were temporarily restricted by purpose: they could only be spent on the missionary program). Of that six thousand dollars, $2,475 was spent on the missionary program. The temporary restriction was met for this $2,475 so the money can be classified as, “released from restriction.”

Similarly the youth program received $5,000 worth of contributions. Of that money $2,475 was spent or “released from restriction.” The image below shows the expenses for each program.

Let’s add this “Net assets released from restrictions” account to 1^st Church’s statement of activities.

If you wanted to make this show up on your statement of activities, then you’d simply make the following journal entries in the General Journal within QuickBooks). My chart of account already contains account 4500 “Net Assets Released from Restrictions.”

In QuickBooks, here’s what this journal entry would look like:

Here’s a look at the statement of activities after we make this change.

The problem with the report shown above is that it makes the programs look less profitable than they really are. This is because the contributions are being removed from the programs through account 4500. FASB gets around this problem by treating all expenses like they are unrestricted.

All Expenses are Unrestricted

For some reason the FASB seems to like the idea of showing all your expenses as unrestricted. The idea being that once you spend the money the restriction placed on the money by the donor has obviously been lifted. Take a look at this example statement of activities from FAS 117 to see what I’m talking about.

The FASB seems to encourage lumping all the expenses into programs. The problem with this method is that it leaves out important information about how the money was actually spent. I would not recommend keeping your books this way for internal reporting purposes. Church leaders will want to see reports that show them how Program A spent that much money (for all they know the $13,100 spent above could have been used to purchase a luxury cruise to the Bahamas).

However, if you’re being audited then you’ll probably want to comply with the FASB. So let’s talk about how to make your reports look like their reports.

This is merely a report formatting issue and doesn’t require a journal entry. The best way to approach this is to export the report to Excel and then lump the expenses into programs (anything to make the auditors happy!).

You can watch me make these changes in Excel by watching this video I’ve called FASB_Lumping.

Here’s what the statement of activities looks like after you’ve made these changes:

Conclusion

Creating GAAP appropriate reports requires a trained hand. You’ll need to work with an experienced accountant to create the necessary reports and notes to the financial statements if you’re going to be audited. Today we looked at some of the adjustments you’ll likely have to make to the statement of activities in order to make it look more like the reports in FAS 117. In the next lesson we’ll look at some of the adjustments you’ll need for the statement of financial position.

Remember that the amount of net assets released from restrictions is simply the amount of money that was temporarily restricted but now has been spent. This amount is simply the amount you spent within each program (as seen below).

Next Lesson

The next section of the book is an Appendix that is intended for those who feel comfortable with the transactions and reports we’ve generated so far and want to make the reports look more like those found in FAS 117.

If there are any additional topics you would like to see covered, please leave them in the comment section below. This book is a living document and I’m happy to provide more insight where needed.

Appendix

Today I’ll show you how to make these entries in QuickBooks. It’s up to you to determine when to make them. It’s also up to you, your church leaders, and your accountant to determine how much of these expenses to allocate to each program.

Transaction #16

Allocating Depreciation Expenses

If you remember back to our earlier lesson on long term assets, 1^st Church bought a $20,000 vehicle. This vehicle incurred $4,000 worth of depreciation expense this year (2012).

Originally this $4,000 expense was charged to the general fund, but the leaders of 1^st Church have decided it would be best to allocate some of this expense to the youth and missionary programs (after all they’ve been using the vehicle too!).

After some discussion the leaders have decided to allocate 25% of the expense ($1,000) to the youth program and 25% of the expense to the missionary program (they figure that is about the amount that each program uses the van).

Open the general journal by going to Company >>> Make General Journal Entries

Original Entry

Below is a screenshot of the original entry we made within QuickBooks. We debited $4,000 worth of depreciation expense and assigned it all to the General Fund.

Allocation Entry

Below is a screenshot of the allocation entry that we’ll make in order to spread the expense out to the different programs.

In the allocation entry you are taking away $2,000 of the expense from the general fund by crediting the depreciation expense account for $2,000 with the class being assigned to General Fund. Then you are debiting the depreciation expense account twice ($1,000 each) with the proper classes in place. This leaves the depreciation expense at $4,000, but now the expense is allocated out across programs correctly.

Allocating Utility Expenses

On February 15^th, 1st Church was charged $500 for utilities. This expense was initially assigned to the general fund. However, church leaders feel it would be fair to allocate some of this expense to the youth and missionary programs.

Again, they determine that 25% or $125 for each program is fair.

Here is the journal entry we’ll make:

First, credit the utility expense account using the general fund for $250. Then debit the same account using the appropriate funds ($125 each).

Knowing Which Accounts to Credit

At first, when you’re not really familiar with your chart of accounts it can be hard to remember which expense accounts require allocation. It’s hard to allocate expenses if you don’t know which accounts need allocating. The transaction detail report is a great report that helps you see all the debits and credits you’ve made in the past.  This report can be very helpful for tracking down accounts that need allocated.

Go to Reports >>> Custom Reports >>>Transaction Detail (as pictured below).

Enter the appropriate date range and then you’ll be provided with a report of all transactions during that time period.

You can double click on any of the transactions in this report to learn more.

Statement of Activities

Here’s what our statement of activities looks like after you’ve made the two allocating entries discussed above.

After your allocation entries, the church leadership will have a clearer picture of where the expenses are occurring within your church. Leaders will be able to make wiser decisions about budgeting and purchases.

Transferring Funds

At this point, you’re not quite done. The $250 spent on utilities for the missionary and youth program was originally taken from the unrestricted general bank account. 1st Church wants to show that this money came from the temporarily restricted account from the youth and missionary programs. The following general journal entry makes this transfer happen.

Here’s what the bank accounts will look like at this point.

Conclusion

Today we learned about allocating expenses to the different programs within the church. This usually requires making a general journal entry within QuickBooks. It also requires some judgment as to how much of each expense should be allocated.

Next Lesson

Today, we will look at payroll in very general terms.

Transaction #15

On the 17^th of February, 1^st Church receives a payroll report from the payroll company it outsources its payroll to. Here’s how to enter this transaction into QuickBooks.

Go to Company >>> Make General Journal Entries

In this journal entry you debit a salary expense account (in this case account #5410) for $1,000. You credit the unrestricted funds bank account for $800.

The $200 difference is the amount of money your church is withholding for tax purposes. You’ll need to  credit a tax withholding (liability) account for the $200 that you are withholding. In the above example I simply credited one account: payroll tax withholdings. However, in real life it’s more complex than this. You can take a look at the chart of accounts below to get an idea of some of the payroll withholding accounts that would need to be credited.

Hopefully you can see why accounting and bookkeeping companies charge extra for managing payroll. It requires expertise and understanding of federal, state, and local laws.

A withholding is simply money that is not paid to employees because the church is keeping the money (temporarily) so it can pay the taxes when they come due. When your church pays these taxes you’ll make a general journal entry where you debit the withholding accounts and credit the cash account.

Allocating Payroll Expenses

You’ll notice in the above example that I assigned all the payroll expenses to the general fund class. Many churches want to be able to assign the payroll expenses by program. We’ll now do that in 1^st Church.

The accountant and church leaders have determined that $500 of the $1,000 wage expense can be attributed to the missionary and youth programs ($250 for each program). To allocate these expenses, we’ll need to open up the general journal again.

Go to Company >>> Make Journal Entries in order to open up the General Journal again.

The first action we need to take when the general journal is open is to credit the original expense for $500 using the general fund class (shown below). This will take away $500 of general fund payroll expenses that should be assigned to the missionary and youth programs instead of the general fund.  Then we’ll need to debit the expense account again and assign $250 to the youth program and $250 to the missionary program (as pictured below).

Now church management has a more accurate picture of the expenses for each of your programs.

After making this entry if we take a look at the statement of activities we’ll see that the expenses are distributed correctly.

Transferring Funds

In the initial journal entry above we took all $800 of the money from the unrestricted bank account. For reporting purposes it would be better to show that 500 of those dollars actually came from the temporarily restricted bank account. We’ll make a general journal entry for this transfer.

In this journal entry we’re giving back the general unrestricted bank account $500. We’re taking the money from the missionary and youth programs. This will make it so the bank accounts are all accurate (shown below).

A Note on QuickBooks Payroll Options

QuickBooks has several payroll options. Here’s a great page for comparing all the different payroll programs available from QuickBooks.  You can also read here about how to obtain the cheapest version of QuickBooks payroll (the basic version).

Conclusion

Today we learned a bit about payroll. We looked at a very general journal entry for payroll and we also learned how to allocate payroll expenses across programs. In the next lesson we’ll look at more allocation entries.

Next Lesson