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Bookkeeping 1:1Bookkeeping 1:1Bookkeeping 1:1Bookkeeping 1:1

CCCCONGREGATIONAL ONGREGATIONAL ONGREGATIONAL ONGREGATIONAL FFFFINANCE INANCE INANCE INANCE LLCLLCLLCLLCFinancial Management for Faith CommunitiesFinancial Management for Faith CommunitiesFinancial Management for Faith CommunitiesFinancial Management for Faith Communities

Rev. Karen McArthur

© 2014 Rev. Karen McArthur

Welcome!Welcome!Welcome!Welcome!

Our goal is to gain an understanding of how the concepts and practice of bookkeeping can add clarity and transparency to a congregation’s financial management, reporting, and planning.

� 1:1 = concept of triple-entry bookkeeping

� 1:2 = income/expense, assets/liabilities

� 1:3 = financial reporting

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© 2014 Rev. Karen McArthur

Our goal is clarity & simplicityOur goal is clarity & simplicityOur goal is clarity & simplicityOur goal is clarity & simplicity

$ 23,200

$ 20,000

3,200

$ 5,000

$ 5,000

Temporarily Restricted Funds

$ 119,200$ 0$ 2,000$94,000TOTAL

$29,500$9,500Building

$ 17,000$ 2,000$ 15,000Communication

$ 15,000$ 15,000Care

$ 10,000$ 10,000Education

$ 35,000$ 35,000Worship

$ 12,700$ 9,50010% to Outreach

EXPENSES

$ 127,000$ 10,000$ 17,000$ 95,000TOTAL

$ 25,000$ 15,000$ 10,000Investment Return

$ 5,000$ 5,000Plate income

$ 97,000$10,000$ 2,000$ 80,000Contributions

INCOME

TOTALPermanently Restricted Funds

Other Unrestricted Funds

General Fund2014

© 2014 Rev. Karen McArthur

………… and Transparencyand Transparencyand Transparencyand Transparency

� Financial reports should be able to answer basic questions:

� What’s the balance in our checking account?

� What have we spent so far in Worship Supplies?

� How much did we collect for One Great Hour of Sharing? Have we paid it yet?

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© 2014 Rev. Karen McArthur

Why Accounting?Why Accounting?Why Accounting?Why Accounting?

� Accounting is a language, a way of explaining.

� Like theology, which is arranging words to tell about God, accounting is arranging numbers to create a snapshot of an organization, and to narrate a video of its activities.

� A good accounting system will build trust and model transparency, leading to solid decision-making for the future.

© 2014 Rev. Karen McArthur

The Language of Accounting

� Literacy is important.

� We talk about “illiteracy” as a problem.

� Numeracy is also essential

� “Innumeracy” can hinder an organization.

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© 2014 Rev. Karen McArthur

Recent changes

� Three changes have affected bookkeeping in faith communities.� The advent of personal computers has made more complex bookkeeping possible for volunteers and part-time staff members.

� New requirements for non-profit organizations in 1993 changed the vocabulary and reporting formats.

� Additional regulatory requirements have added to the complexity of bookkeeping, which is even more difficult for volunteers or part-time staff.

© 2014 Rev. Karen McArthur

Bookkeeping in the church …

� Bookkeeping is not new.

� 15th century merchants in Venice needed a system

� Fra Luca Pacioli, a Franciscan monk, published the first description of double-entry bookkeeping in 1494

� It’s still pretty much the same.

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© 2014 Rev. Karen McArthur

Bookkeeping Structure

� The phrase “double-entry bookkeeping” is so standard in finance world, that we no longer think about what it means.

� That means those new to bookkeeping don’t get a good explanation.

� Yet, you know more than you think you do!

© 2014 Rev. Karen McArthur

Single-entry bookkeeping

� Keep track of how much money you have

� Money comes in

� Money goes out

� Keep track of balance

� Looks like old handwritten check register

BalanceDepositsChecks

+ 350

+ 240

Food Market

Rev. Jones

Offering

Rev. Smith

Offering

Balance

1/14

1/14

1/14

1/7

1/7

1/1

1,462

1,490

1,790

1,440

1,740

$1,500

- 28

- 300

- 300

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© 2014 Rev. Karen McArthur

Double-entry bookkeeping

� All the same elements of single-entry bookkeeping

� Adds one dimension: income / expense categories (or “accounts”)

Food Market

Rev. Jones

Rev. Smith

Balance

BalanceDepositsChecksAccount

+ 350

+ 240

Coffee

Preacher

Offering

Preacher

Offering

1/14

1/14

1/14

1/7

1/7

1/1

1,462

1,490

1,790

1,440

1,740

$1,500

- 28

- 300

- 300

© 2014 Rev. Karen McArthur

DoubleDoubleDoubleDouble----entry bookkeepingentry bookkeepingentry bookkeepingentry bookkeeping

� All the same elements of single-entry bookkeeping

� Adds one dimension: income / expense categories (or “accounts”)

Food Market

Rev. Jones

Rev. Smith

Balance

BalanceDepositsChecksAccount

+ 350

+ 240

Coffee

Preacher

Offering

Preacher

Offering

1/14

1/14

1/14

1/7

1/7

1/1

1,462

1,490

1,790

1,440

1,740

$1,500

- 28

- 300

- 300

7

© 2014 Rev. Karen McArthur

DoubleDoubleDoubleDouble----entry bookkeepingentry bookkeepingentry bookkeepingentry bookkeeping

� Keeping track of these accounts is simple with a computer

� In the earlier days of paper/pencil bookkeeping (or parchment/quill!), this would require making two entries:� First recording the amount on the

checking account page� Second, recording the amount on

the page for the appropriate income/expense account, like “Offering income” or “Hospitality expense.”

© 2014 Rev. Karen McArthur

Triple-entry bookkeeping

� All the same elements of double-entry bookkeeping

� Adds a third dimension: The unrestricted or restricted source of funds

1,790+ 50MissionMission Offering

1/14

General

General

General

General

General

Fund

Food Market

Rev. Jones

Rev. Smith

Balance

BalanceDeposi

tsChec

ksAccount

+ 300

+ 240

Coffee

Preacher

Offering

Preacher

Offering

1/14

1/14

1/14

1/7

1/7

1/1

1,462

1,490

1,790

1,440

1,740

$1,500

- 28

- 300

- 300

8

© 2014 Rev. Karen McArthur

Triple-entry bookkeeping

� All the same elements of double-entry bookkeeping

� Adds a third dimension: The unrestricted or restricted source of funds

1,790+ 50MissionMission Offering

1/14

General

General

General

General

General

Fund

Food Market

Rev. Jones

Rev. Smith

Balance

BalanceDeposi

tsChec

ksAccount

+ 300

+ 240

Coffee

Preacher

Offering

Preacher

Offering

1/14

1/14

1/14

1/7

1/7

1/1

1,462

1,490

1,790

1,440

1,740

$1,500

- 28

- 300

- 300

© 2014 Rev. Karen McArthur

Fund AccountingFund AccountingFund AccountingFund Accounting

� What are funds?

�Donor-Restricted or Unrestricted

�Practically, roll-over funds

�Technically, Net Assets

� Understanding the concept is the heart of non-profit bookkeeping

� Tracking funds allows us to simplify bank accounts and transfers

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© 2014 Rev. Karen McArthur

Three dimensions to every entryThree dimensions to every entryThree dimensions to every entryThree dimensions to every entry

What Account is it being deposited to or

deducted from?

Which Budget line is it?

What is the Class of funds?

© 2014 Rev. Karen McArthur

Example: Buy StampsExample: Buy StampsExample: Buy StampsExample: Buy Stamps

� Buy stamps at post office, check #123� Account = checking account

� Budget line = Postage

� Class of funds = General Fund (Unrestricted)

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© 2014 Rev. Karen McArthur

Example: Electric BillExample: Electric BillExample: Electric BillExample: Electric Bill

� Electric Bill� Account = checking account

� Budget line = Electricity

� Class of funds = General Fund (Unrestricted)

© 2014 Rev. Karen McArthur

Example: Sunday OfferingExample: Sunday OfferingExample: Sunday OfferingExample: Sunday Offering

� Deposit of Sunday offering� Account = checking account

� Budget line = Plate offering and/or Pledged contributions

� Class of funds = General Fund (Unrestricted)

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© 2014 Rev. Karen McArthur

Example: Special OfferingExample: Special OfferingExample: Special OfferingExample: Special Offering

� Deposit of One Great Hour of Sharing offering.

� Account = checking account

� Budget line = Special Offering Income (Contributions)

� Class of funds = One Great Hour of Sharing (Temporarily Restricted)

© 2014 Rev. Karen McArthur

Example: PreExample: PreExample: PreExample: Pre----paid Pledgepaid Pledgepaid Pledgepaid Pledge

� Deposit of pledge for next year.� Account = checking account

� Budget line = Pledged contributions

� Class of funds = Next Year Fund (Temporarily Restricted)

� Then, on January 1st

� Make an entry to move pledge contribution from “Next Year Fund” to “General Fund”

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© 2014 Rev. Karen McArthur

Example: Transfer from SavingsExample: Transfer from SavingsExample: Transfer from SavingsExample: Transfer from Savings

� Transfer of $10,000 from Money Market Account.� Account = money market account

� Account = checking account

� Budget line = ??

� Class of funds = ??

� ABC triple-entry only applies to income or expense – money coming into or leaving the congregation.

© 2014 Rev. Karen McArthur

Next SessionsNext SessionsNext SessionsNext Sessions

� Bookkeeping 1:2

� Income / Expense

�Assets / Liabilities

�Cash vs. Accrual Accounting

� Bookkeeping 1:3

�Financial Reports