Fund accounting for churches

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What Is Fund Accounting? And Why Is It So Effective for Churches?

Accounting is a multi-faceted responsibility for every church. One element that is important to nail down right from the beginning is the accounting method that you’ll use to track your ministry’s finances.

One popular church accounting option is fund accounting. This is an effective way for faith-based non-profits to track money in a manner that is better suited to their goals as an organization.

If you’re unsure what fund accounting is, this resource can help. Let’s look at the basic definition, its benefits, and why fund accounting is such an effective form of financial management for a church.

What Is Fund Accounting?

Fund accounting is a form of accounting used by nonprofits. General accounting methods used in traditional business settings focus on things like revenue and profitability. In contrast, fund accounting emphasizes accurate accountability and transparency of the funds an organization receives.

Fund accounting is nuanced and can be complex when observed in detail. However, a 10,000-foot view description is simple. Fund accounting assigns an organization’s income to specific funds.

These are often referred to as “pots” or “buckets” and are groupings of money that are devoted to specific needs. For example, a church could have a fund for building maintenance, special benevolence, or local outreach.

Administrators can break funds down into their own independent accounts, especially when they’re for significant things, like a missions ministry or payroll. This allows each fund to have its own balance sheet to track income and outflow from the fund.

While we’ll consider the advantages of fund accounting in a moment, it’s worth pointing out that there are some disadvantages to this kind of accounting, too. For instance, fund accounting can be time-intensive as teams assign, distribute, and track income across each fund. 

Evaluating the efficiency of each fund is also more difficult, as the emphasis is often on accountability of the funds themselves rather than how the money is spent within each area. Of course, investing in proper and consistent evaluations can address this concern.

The Benefits of Fund Accounting

Fund accounting offers a few benefits that are particularly relevant to non-profits — including churches. Here are a few of the biggest advantages that it offers.

Better Decision Making

Fund accounting enables non-profits to make better decisions. Remember, a non-profit isn’t endlessly pursuing greater income and profitability. Instead, it operates (typically with limited resources) in pursuit of specific goals. Fund accounting helps effectively enable and track progress toward those objectives.

Greater Clarity and Control

Fund accounting provides greater clarity and control over financial planning. It enables each leader, team, and segment of a non-profit to understand what resources they’re working with as they make budgets and spend money. It also allows them to act freely within financial boundaries without worrying about budgets getting out of hand.

Easier Reporting

Fund accounting makes it easier to report on financials and evaluate organizational goals. Non-profits often have varied and disconnected objectives. 

A church, for instance, might be equally invested in providing coffee for attendees on Sunday morning and supporting a missionary half a world away. These are mutually exclusive financial objectives, and fund accounting makes it easier to track financial efficacy in both areas.

Fund accounting is an ideal way for a non-profit to maintain transparent finances and effectively finance its goals as an organization.

Why Is Fund Accounting Helpful for Churches?

Fund accounting is a popular option for governments and service organizations. It’s also a great way for churches to manage their money.

Churches aren’t focused on turning a profit. Instead, they pursue Kingdom-building goals, which they pay for through donated financial support. These range from praise and preaching on a Sunday morning to children’s ministry, missions work, building funds, and more.

The ability to fund each of these ministries based on its needs is powerful. In addition, fund accounting provides a certain degree of budgeted autonomy for each area as its teams allocate their funds toward the pursuit of each ministry’s individual goals.

Getting Help With Fund Accounting

While fund accounting is an effective and powerful way to oversee church finance, it can be difficult to understand at times. The Motley Fool even points out that it can be a challenge for experienced accountants.

That is why you want to find an accounting partner who is well-versed in this unique form of financial management. At Chaney & Associates, we focus on being the accounting firm for the Church. We provide professional faith-based accounting services and support — and part of that is expertise in fund accounting.

If you want help navigating fund accounting for your church, contact us. Our team of Christian CPAs can help you understand, establish, and utilize this uniquely effective form of non-profit accounting for your ministry.

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