2 Managing the Money US

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Managing the Money

MCC Resource for Treasurers of Our Local Churches US Edition


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Table of Contents

Basic Accounting Principles For Non-Profits 001

Review Of Accounting Software

How To Use A Simple Spreadsheet (e.g., Excel)

Double -Entry Bookkeeping

Understanding The Difference Between The Budget And The Balance Sheet,Income And Expense Statement, And Statement Of Cash Flow

BudgetBalance Sheet

Balance Sheet AssetsBalance Sheet LiabilitiesBalance Sheet Net Assets

UnrestrictedTemporarily RestrictedPermanently Restricted

Income Statement

Income Statement RevenueIncome Statement Expense

Cash Flow StatementCash Flows

Operating ActivitiesInvesting ActivitiesFinancing Activities

How To Prepare A Balance Sheet, Income And Expense Statement, AndStatement Of Cash Flow

Balance Sheet PreparationIncome Statement PreparationCash Flow Preparation

Web Resources and References

Forms

A MCC Resource for Treasurers US Edition


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Basic Accounting Principles For Non-ProfitsWhether your church is large or small, effective financial management is an ongoing

process featuring a cycle of good management habits. Sound procedures and internal

controls help ensure accurate accounting and high-quality reporting. Evaluation of the

information in the reports then informs planning and facilitates good management

decisions. Regular evaluation of the process leads to consistent improvement infinancial management.

The diagram above and the following basic overview give some general perspective onthe basic processes involved in non-profit financial management. The followingactivities described below occur regularly as part of the yearly accounting cycle or morefrequently as circumstances dictate. The accounting cycleincludes bookkeeping,

generating financial statements and analyzing information from the statements.

Bookkeeping is basically recording various financial transactions. Bookkeepingactivities can often be done by someone responsible for basic clerical work in thechurch. However, the Treasurer usually oversees and approves the bookkeepingsystem.

The Board develops and authorizes a set of standard operating procedures (SOPs)which outline how the church shall manage its finances, including how the followingactivities are carried out within the church. The Treasurer usually coordinatesdevelopment of the SOPs, including a regular review and update. The Board and

Senior Pastor should make every effort to ensure compliance with the SOPs. SeeSample Financial Operating Procedures below.



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001Accounting starts with basic record keeping (or bookkeeping). When a church is justgetting started, its bookkeeping system will probably be based on what is called cash-basis accounting, rather than an accrual-basis accounting system. Many youngchurches use the cash-basis system and a checkbook to track transactions. In the

memo portion of the checkbook or register, the amount is noted as Revenue orExpense and includes the source or destination of the funds. As a church grows, itshould begin to use ledgers (journal) to track transactions. For example, cash receiptsshould be posted to a Cash Receipts Journal and checks written should be posted to aCash Disbursements Journal.

As a church continues to grow and begins using the accrual method, those responsiblefor bookkeeping will likely need more types of journals, for example, a Cash ReceiptsJournal, a Cash Disbursements Journal, a Fixed Assets Journal, a Fund RaisingJournal, Journal a Payroll Journal, an Accounts Receivable Ledger, an AccountsPayable Ledger, a Sales Journal, a Purchases Journal and a General Ledger. In an

accrual-basis system, entries are posted when money is earned and when money isowed. Small churches usually do not have the resources to use an accrual-basedsystem. However, financial statements are prepared on an accrual basis. As acompromise, many churches use cash-based principles to record entries in journals, butget help to convert to an accrual-based approach in order to generate financialstatements.

Accounts andChart of Accounts: Each entry should be posted according to thecategoryor accountof the transaction. Each account will be associated with anaccount number. These numbers are referenced when developing financial statements(more on those later). A Chart of Accounts indicates which account number to usewhen posting a particular entry. Charts of Account can be designed specifically foreach church, including developing unique account numbers. The account numbersdeveloped should depend on the particular kinds of revenues and expenses a churchexpects to have most frequently.

A Chart of Accounts usually has five categories covering the following areas: assets,liabilities, net assets orequity (including specific fund balances), revenues, andexpenses. However, non-profits must report account activity according to theclassifications of Functional (or Programs) and Natural (or Supporting). Functionaltransactions are those directly related to providing services to clients, members, etc.Natural transactions are those common to all programs, for example, generalmanagement costs, etc.

Budgets (Financial Forecasting): A church will have an operating budget (or annualbudget), which provides the Treasurer projected revenue and expenses, usually for thecoming year. Budget amounts are usually divided into major categories such assalaries, benefits, computer equipment, office supplies, etc. Cash budgets, whichdepict the cash a church expects to receive and pay over the near term, for example, amonth, may also be provided. A Treasurer also might be provided capital budgets,



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which depict expenses to obtain, develop, operate, or maintain facilities or major piecesof equipment such as buildings, automobiles, computers, furniture, etc.

Usually, a Treasurer will prepare a monthly comparison of actual revenue and expensesto the approved budget. This allows a comparison between planned revenue and

expenses to actual revenue and expenses, providing the Treasurer with a good idea asto whether the church is operating financially according to plan or not, as well asindicating areas which may need attention such as trimming expenses or bolsteringrevenue.

Petty Cash: A church usually has many small, recurring expenses that need immediateattention, for example, computer power cords, stamps, etc. This will most likelynecessitate a petty cash fund. This is a small amount of available cash which can begenerated by writing a check to the church, from a church account and noting on thecheck that the cash received from the bank goes to the petty cash fund. Money canbe withdrawn from the fund upon submission and approval of a voucher that describes

who received the money, the amount received, the purpose for which the cash wasused, and on what date the money being reimbursed was spent. Usually the Treasureror bookkeeper requests the store receipt or bill of purchase for the item or serviceobtained be attached to the submitted voucher in order to verify the purchase.

Trial Balances: The Treasurer, or the bookkeeper with the Treasurers assistance, willoften do a monthly trial balance. This activity usually starts by totaling the entries fromthe journal(s) into a general ledger. When using double-entry accounting, totals on bothsides of the ledger are added up to make sure that total debits equal total credits.

The Treasurer should ensure that the individual postings and totals in the ledger arecorrect by comparing each to its accompanying documentation. For example, therecording of cash disbursements should be compared to the monthly checkingstatement received from the bank that indicates what checks have been drawn from thechurchs account during the month and post Petty Cash receipts. The recording of cashdisbursements should also be compared to accompanying invoices and other forms ofbilling submitted to the church for the purpose of verifying there was a need for eachcheck written.

Internal Controls: The church should have in place various forms ofinternal controls toensure it is properly following its financial plan. Internal controls also minimize thelikelihood of accounting mistakes and help avoid employee theft, etc. There are a widerange of internal controls. Some examples of internal controls include careful hiringpractices (performing background checks or requiring an employee be bonded),establishing checks and balances or double oversight for a particular function, andcreating carefully controlled lists of people who are responsible for various functions andclearly outlining what authorization each has in regards to accessing information and/ordifferent secured areas of the facilities (who collects the offering, who counts theoffering, who has access to the on-site safe, who makes bank deposits).



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As mentioned above, totals from various financial reports, will be reviewed against eachother to determine if a churchs financial activities are progressing according to theapproved plan or not. As also noted, internal controls to minimize employee theftshould be established, among which, the churchs mail should be opened by oneperson only who logs in each check that is received. This person must be someone

other than the person who deposits the checks to the bank.

Disbursements of large cash amounts, for example, over $500, should probably requirea secondary signature, for example, from the Treasurer. Should the check be madepayable to any of the two authorized signees, a third signee should have beenpreviously established who can sign in place of the payee, thus assuring a large checkis always signed by two authorized persons other than the payee.

Another form of financial control is an audit. An audit is a comprehensive analysis, by aprofessional from outside the church, of your financial management procedures andactivities. The auditor produces a report which contains a variety of supplemental

information that indicates how well your church is managing its resources. Somenonprofits are required to have external audits. It is usually good practice to have aperiodic audit, whether you are required to or not. Note: External audits are need toprocure outside funding (i.e. mortgage).



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How To Use A Simple Spreadsheet (e.g., Excel)A basic record keeping system will be based on a manual entry system, most likelyusing a simple Microsoft Excel spreadsheet. Excel is a spreadsheet program thatanalyzes, organizes, solves, and charts information. Excels most powerful features arethe ability to create formulas, lists, and charts. An Excel spreadsheet consists of a grid

made from columns and rows (see Fig 1).

Fig. 1

Cell The small rectangle container that can hold numbers, text, formulas,



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etc.

Active Cell Cell that is selected and has a border around it. Also called selected or

highlighted cell. In the above example, A1.

Cell

Reference

The cell address that is used in a formula to specify which cell(s) are

used

Cell Address Identifies a cells location. The default style in Excel uses letters to

denote columns and numbers to denote rows. A1 refers to Column A

and Row 1

Range Two cell references that are separated by a colon. Example (B5:D13)

will find all cells between B5 and D13including B5, B6,B13, C5, C6,

C13, and D5, D6, D13.

Worksheet The document area in Excel. A page of cells that are arranged in rows

and columns. Worksheets can contain text, charts, formulas, and files.

Default is three worksheets; the maximum number of worksheets is

limited to the computers memory.

Workbook A collection of worksheets. File extension is .xls.

It is an environment that can make number manipulation easy and somewhat painless(see Fig. 2).

Fig. 2

Record keeping and accounting systems may eventually evolve to a computer-basedsystem, which greatly automates entry of transactions, updating of ledgers, generation

of financial statements and financial analysis (more later on these, and generation ofreports needed for filing taxes, etc.)

For more information, please refer to http://en.wikipedia.org/wiki/Microsoft_Excel.

http://en.wikipedia.org/wiki/Microsoft_Excelhttp://en.wikipedia.org/wiki/Microsoft_Excel


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Double-Entry BookkeepingPostings can be done using a single-entry ordouble-entry method. Double-entry worksfrom a basic accounting equation Assets = Liabilities + Equity. The double-entrymethod makes sure that the financial books are always in balance. Every transactionhas two journal entries, a debit and a credit. Each transaction affects both sides of the

equation.*

Each posting might refer to accompanying documents that should be kept in an easilyaccessible and understood file somewhere. For example, postings about cash receiptsmight refer to invoices sent to a client which prompted the client to write checks to thechurch (checks which were posted as cash receipts). Or, in another case, postingsabout cash disbursements might refer to invoices that were sent to the church whichrequired checks be written to a vendor (checks which were posted as cashdisbursements). The deposit receipts received from the bank should always be kept inin a file.

In order to know how the church is doing, the Treasurer will be responsible for doingongoing financial planning and analysis. In this planning and analysis, a cash flowstatement, a statement of activities (sometimes called income statement or income andexpense statement) and a statement of financial position(also referred to as a balancesheet) will be generated from the bookkeeping information tracked in the ledgers and

journals.

A cash flow statement depicts changes in the churchs cash during the year. Astatement of activities depicts the changes in the churchs assets over the past year,which includes both cash and other assets such as the building and capitalizedequipment. This statement is particularly useful to indicate if the church is operating withextra money or at a deficit, as it gives a fairly good indication of the churchs rate ofrevenue intake and spending outflow. This can help signal areas of concern. Astatement of financial position depicts the overall value of the church at a given time(usually at the end of the year). It is generated by recording the churchs total assets,subtracting its total liabilities and reporting the resulting net assets (capital). Net assetsare reported in terms ofunrestricted, temporarily restricted and permanently restrictedassets.

By themselves, numbers usually dont mean much. But when compared to certain othernumbers, they can inform a Treasurer and Board about how their church is doing. Asmentioned, the planned expenses depicted on the churchs budget can be compared tothe actual expenses paid out by the church in order to see if spending is on track. Thisis a one-to-one comparison of a projected number to an actual number.

Another form of comparison is by using ratios. A ratio is a comparison made bymathematically dividing one number by the other. For example, nonprofits are expectedto keep administrative costs down in order to make more money available for programsand services. Dividing program expenses by the total expenses for the church indicatesthe amount of administrative overhead used to run the programs. The interpretation



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rendered from the results of various types of comparisons will always depend on thenature of the nonprofit.

To be fiscally responsible, a churchs Board should require regular financial reports ateach Board meeting. The Board may request additional information such as a

statement of financial position or statement of activities be presented at each meeting,as well as requesting descriptions of finances for each program or of affordability forupcoming major initiatives. They may request information prior to filing taxes, and theywill certainly need to see any results from financial audits. The Treasurer shouldprepare and present accurate and complete financial reports to the Board.



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Understanding The Difference Between The Budget And The Balance Sheet,Income And Expense Statement, And Statement Of Cash FlowThe Budget shows the churchs projected expenses and revenues for a given period oftime. Basic budgeting should be integrated into the churchs programs and services todetermine planning steps, evaluation methods, timing of events, and costs related to

achieving the churchs mission. There are five key steps in budgeting:

1. Estimating expenses2. Estimating potential sources of income3. Bringing projected expenses in line with projected income4. The final proposed budget must then be reviewed and approved by the Board ofDirectors after fine-tuning.5. During the year, the budget must be evaluated periodically to determine whetherprojected and actual income and expenses are in line. (If not, and if the

varianceamounts over or under budgetare substantial, then the budget must beupdated and revised if it is to be of any use at all.)

When a church plans a budget it must estimate what the revenues and expenses will befor certain programs over a fixed period of time. The basic premise on which to basebudgeting revenues and expenses is a well-laid out plan of activities for the next year.These predictions orforecasts can be made from historical data or, if none exists, fromsimilar information garnered from other churches with similar parameters.

If a church delivers multiple programs, the staff and Board must determine the viabilityof each program and the revenues and costs associated with each. Variances betweenthe actual and the projected budgets that appear throughout the year will be indicatorsof change within in the church.

The heart of budgetary control is studying and investigating the cause of variancesbetween budgeted figures and actual income and expenses.

The Balance Sheet (Fig. 3) is one of the most fundamentally important documents anonprofit can provide for use in its internal management. The balance sheet is asnapshot at a given point in time of the churchs value. The balance sheet establishesfinancial information to external entities. The balance sheet is often referred to as theStatement of Financial Position and complements the cash flow statement. It describeswhat you own, such as equipment and cash (assets), compared to what you owe, suchas loans (liabilities).

Note: It is also recommended that a church keep on hand at least one (1) month ofexpenses as a cash balance in accounts for cash flow purposes.



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Fig. 3



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Balance Sheet Assets

Cash balance on the date of the balance sheet: Liquid funds or funds such as U.S.Treasury bonds on deposit in the bank or petty cash. An audited financial statementrequires that restricted cash (or any other asset) with a donor- imposed restriction

which limits its long-term use must be classified in a temporarily restricted orpermanently restricted account. Pledges orgrants receivable (amounts due to the church or receivables): These are

amounts that have been committed by an outside or external donor to theorganization. Pledges and grants should be recorded as the amount the nonprofitexpects to receive or the net realized value. Nonprofits should not report the full orgross amount because the line item could be overstated. Nonprofits should report theamount entitled to up to and included in the date, also referred to as accounts receivable.

Investments: This refers to valuation of the organizations stocks and bonds. Theamount that should be recorded is the fair market value on the date that the financialstatements are prepared. However, on a tax return, this amount can be the historical

cost of the investments, the lower fair market value or historical cost, or the normalfair market value that is indicated on the financial statements. Expenses paid in advance for future service or prepaid expenses: These are costs

paid in advance for receiving goods, services, or benefits for the organization. Thistype of asset will decline in value as the asset is consumed by the organization.

The churchs fixed assets: This category includes all property and equipment ownedby the organization. Fixed assets are generally not sold and the balance sheet doesnot reflect the fair market value of the asset or the cost of replacing the items.Instead, the fixed asset line item includes the net book valueof the assets. The netbook value is the historical cost of the long-term assets less depreciation. In general,fixed assets depreciate year to year as the organization records a non-cashdepreciation expense or use of the item. This depreciation often follows the straight-line method, which reduces the assets worth by equal increments over theestimated useful life of the asset.

Balance Sheet Liabilities

Accounts payable: This line item includes unpaid bills from vendors and creditorsfor goods and services delivered. If specific items such as wages, taxes, and grantsare significantly large, they can be reported separately or integrated into this lineitem. Amounts owed for services rendered oraccruedexpenses

Grants payable: These are grant amounts promised to individuals or otherorganizations. Refundable advances: This is also known as deferred revenue. Included in thisline item are grants received from donors that are not considered or recognized asrevenue because the conditions of the grant have not been met Dues to third parties: These are dues transferred to a third party through anotherorganization. An example is United Way, a federated membership organizationwhich acts as a transfer agent collecting contributions from one group and



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disbursing the funds to a third party. The intermediary party has no power to changethe recipient of the funds, so the funds are considered liabilities. Short- andLong-term debt: This is the principal and interest owed to a creditor.Examples of long-term debt are bank loans, mortgages, publicly traded bonds, orprivately arranged debt financing.

Balance Sheet Net Assets (Three Categories)

Unrestricted: These are funds unrestricted by the donor. Temporarily restricted: These are funds that are limited by donor stipulations.These stipulations can either be met by the actions of the organization or expire overtime. Permanently restricted: These funds are similar to temporarily restricted funds,but the donor stipulations do not expire over time or by the actions of anorganization. An example of permanently restricted funds is the principle of anendowment. The principle of the endowment must remain intact into perpetuity

Once a church has reviewed its assets and liabilities, it can address several importantareas: solvency, resources, and outstanding liabilities. A church is solvent if the current(12 months or less) assets are greater than the current (12 months or less) liabilities. Agood rule of thumb is to maintain a current ratio of 2:1, assets to liabilities. Whenliabilities are greater than assets, it is an indication that the church is in, or headedtoward, severe financial problems.

The second step in reviewing the balance sheet should be to look at the resourcesowned by the church. By reviewing its resources, a Board, with the Treasurers

guidance, can determine if there are any assets that could potentially be used tosupplement the payment of maturing debts. Finally, there should be careful scrutiny ofwhat the church owes, especially with respect to determining when these outstandingliabilities are due.

The Income Statement (Fig. 4) is a description of how the organizations equity oroperations (financial activities) have changed over a specific period of time. Thischange in net assets is expressed through the general equation: Revenues minusExpenses equals Change in Net Assets. This change in net assets reflects either asurplus or a deficit. The income statement is often referred to as the Income andExpense Statement or the Statement of Activity.

The revenue portion of the income statement is generally divided into three categories:unrestricted, temporarily restricted, and permanently restricted funds. When a churchreceives fundsor revenuesit must determine the intent of the donor, which is thenreflected and categorized under unrestricted, temporarily restricted, or permanentlyrestricted funds. If a donor imposes a restriction on the funds, then the use of the fundsis limited according to that donors request. However, the donor cannot ask for thereturn of the donation.



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An asset can be moved from the temporarily restricted to the unrestricted column if therestriction is removed. Upon removal from the temporarily restricted column, anorganization can use the funds as needed. Permanently restricted funds cannot bemoved unless the time allotted for the funds expires or the full intent of donor is carried

out by the organization (such as meeting all the donors stipulations).

A donor may also impose a condition when donating monies. A donation is considereda liability until the condition is met as the donor requested. The money is considered aliability because the donation can be rescinded until the condition is met by the church.It cannot record the donation as revenue until the condition or liability is eliminated (i.e.a capital donation made to purchase a labyrinth).



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Fig. 4Income Statement Revenues

Contributions: These are unconditional transfers of assets to a nonprofit,cancellation of a liability or settlement of a voluntary nonreciprocal transfer. This lineitem can include future unconditional promises to pay cash or other assets.Contributions are recorded at fair- market value when the gift is received. Ifcontributions are paid in installments, the nonprofit can record only the amount



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received, not the gross amount of the gift. The interest compounded over the lengthof the gift can be recorded as a gift to the organization. If the organization fearsdelinquency of payments, the organization can reduce the value of amount given bythe anticipated defaults of payments. In-kind goods and services are not generallyrecorded on the Income Statement. Collections do not have to be recorded under

revenues in certain situations, but in-kind professional services can be recorded ifthe service increases or creates a non-financial asset. Program service revenue: This is revenue generated when the church provides aservice in exchange for cash or another asset. Miscellaneous income: This is revenue that is generated for miscellaneousservices that the church provides. Special events revenue: This is revenue from special events (i.e., fundraisingevents) that are recorded separately from contributions. The church should recordthe gross revenue of the event and offset this amount by recording the costsassociated under the line item for fundraising expenses. Investment income: This is income earned from the investment portfolio. This

includes dividends on stock as well as interest on bonds. GAAP accounting requiresthat investment income includes changes in the market value of the investments.

Income Statement Expenses

Program expenses: These are costs for the delivery of goods and services thatare associated with the churchs mission. Fundraising expenses: These are costs associated with publicizing andconducting fundraising campaigns. These may include: maintaining donor mailinglists, conducting special fund-raising events, preparing and distributing fund-raisingmanuals, and other activities involved in soliciting contributions or memberships.

Administrative expenses: These are costs associated with general andmanagerial expenses such as oversight (i.e., salaries and benefits), businessmanagement, record keeping, budgeting, financing and related administrativeactivities.

A Cash Flow Statement (Fig. 5) enables a nonprofit to determine where it spent itsmoney and where the money came from. The cash flow statement is different from anoperating statement because it reflects the cash situation of the church in its entirety,whereas the operating statement reflects a current given period of a churchs activitiesas reflected by their revenues and expenses.

Cash flow statements can easily be prepared by analyzing the beginning balance sheetwith the ending balance sheet covering a specific time period. Subtracting thebeginning balance sheet from the ending balance sheet will indicate the changes in thebalances for each period, also referred to as the cash flow for the church. Cash or giftsof any kind with a restricted purpose must be segregated from those that are general orunrestricted assets and from temporarily restricted funds.



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Fig. 5

Cash Flow Statement Breakdown of Cash Flows

Cash Flows from Operating Activities: This area details the unrestricted andtemporarily restricted funding of the church. This includes unrestricted andtemporarily restricted cash inflows and outflows. The main body of the BookGood



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Nonprofit cash flow statement is an example of the direct method of accounting thatrestates the temporarily and unrestricted income on a cash basis. The reconciliationat the bottom of the figure is an example of the indirect method of accounting. Thismethod begins with the change in net assets from the Statement of Activities(Income Statement or Operating Statement) and converts the amounts from the

accrual method to cash basis accounting. Most nonprofits will utilize the indirectformat to depict the church cash. Cash Flows from Investing Activities: This area depicts the cash inflows andoutflows that arise from long-term assets and investments. Cash Flows from Financing Activities: This area depicts the churchs cash inflowsand outflows from financing activities such as receipts and repayments to creditorsor donors. This area is for permanently restricted funds that have a set ofrequirements that need to be completed by the church before the money may beused. When and church completes the three sections of the cash flow statement thenet increase/decrease in income explains how the cash has changed during thegiven period of time and shows the current churchs current cash balance.



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How to Prepare a Balance Sheet (See Figure 3 above.)

1. Prepare a spreadsheet document to receive four columns of dataa text list with

subsections Assets, Liabilities and Fund balance to the far leftand threecolumns of figures to the right2. Summarize and subtotal all church assets.

a. These will include all cash accounts, investment accounts and propertythat is on the church books. List these in the Assets section of thechurch balance sheet.

b. Place the summarized figures in the second column from the left.c. Place a subtotal on the next line in the far right column and label this line

Total Assets.d. Place a double underline on this figure; it represents the first half of the

church balance sheet.

3. Summarize and subtotal all church liabilities.a. List these in the Liabilities section of the church balance sheet.b. Place the summary figures in the second column from the left.c. Place a subtotal on the next line, in the far right column of the balance

sheet.4. List your churchs fund balances in the Fund Balance section.

a. The first line item in this section will be General Fundconsult youraccounting records for a beginning general fund balance.

b. The second line will be Designated Fundstake this figure from theTotal Designated Funds line on the fund balances report you prepared inSection 2.

c. The third line item will be Excess Income Over Expenses. This figurewill be found at the bottom of your statement of income and expenses.d. Place all these figures in the column second from the right.e. Subtotal these figures in the far right column. Label this line item Total

Fund Balance. Underline this figure.5. Calculate the sum of Total Liabilities and Total Fund Balance.

a. Place this sum at the bottom of your balance sheet, in the far right column;double underline this figure.

b. This total should be exactly the same as the number under Total Assets.

How to Prepare an Income Statement (See Figure 4 above.)

1. Prepare a spreadsheet document to record a column of text descriptions to thefar left and three columns of figures to the right.

2. Summarize and subtotal the churchs general fund income (undesignateddonations) for the accounting period to be reported on the church financialstatements.



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a. List these in far right column of the document under the heading GeneralFund.

b. Place the summary figures in the second column from the right.c. Place a Total Income subtotal line directly beneath these, with the

subtotal figure in the far right column.

3. Summarize and subtotal the church's expenses for the same period.a. List these in the far left column under the heading Expenses.b. Place the summary figures in the column second from the left.c. Group like expenses together, and place subtotals for each group of

expenses in the column second from the right.d. Place a total of all expenses on a separate line labeled Total Expenses,

with the amount in the far right column.4. Calculate the difference between Total Income and Total Expenses.

a. Place this amount in the far right column as a separate line item labeled"Excess Income Over Expenses.

How to Prepare a Cash Flow Statement (See Figure 5 above.)

1. Assemble all church accounting records showing cash disbursements and cashreceipts for the accounting period being reported on the churchs financialstatements.

a. Verify that all bank accounts have been reconciled to church accountingrecords.

2. Record a beginning cash balance, then a summary of cash disbursements, asummary of cash income and, finally, an ending cash balance.

a. More or less detail can be shown on the cash flow statement, dependingon the preference of board members.

3. Prepare a fund balances report, listing all designated funds, a beginning balance,total debits and total credits, and an ending balance for each fund.a. A grand total of all designated funds will be at the end of the report.b. The report may also show the general fund balance.



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References and Resources

www.Dicitionary.reference.com

www.investopedia.com

www.Investorwords.com

Microsoft Excel Spreadsheet http://en.wikipedia.org/wiki/Microsoft_Excel

No Lo Law For All http://www.nolo.com/dictionary

Wikipedia.org http://en.wikipedia.org

*See Quick Reference Guide: How Debits and Credits Work

http://www.dicitionary.reference.com/http://www.investopedia.com/http://www.investorwords.com/http://en.wikipedia.org/wiki/Microsoft_Excelhttp://www.nolo.com/dictionaryhttp://en.wikipedia.org/http://www.dicitionary.reference.com/http://www.investopedia.com/http://www.investorwords.com/http://en.wikipedia.org/wiki/Microsoft_Excelhttp://www.nolo.com/dictionaryhttp://en.wikipedia.org/


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FORMS



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Financial Operating Procedures (Sample 1)

Church finances shall be under the ultimate direction of the congregation. The FinanceCommittee shall make monthly reports to the church.

This Church shall be wholly supported by the voluntary tithes and offerings of membersand friends of the church.

This Church shall operate with a unified budget with one treasury. All funds received forany and all purposes must be accounted for by the Finance Committee. Financialstatements will be made available to members each month.

The fiscal year shall begin on January 1 and end on December 31.

The Finance Committee shall begin the budget making process, drawing on the input ofall the ministries and teams of the church. The Personnel Committee shall makerecommendations concerning paid employees of the church. The Finance Committeeshall present the budget to the Deacons and then to the church. Copies of the proposedbudget shall be distributed to the church members at least one week prior to itsadoption during the December business meeting.

Once an expenditure is approved by inclusion into the church budget, no other approvalis needed unless due to the church being in a tight economy, the Finance Committeeshall announce a need for prior approval of expenses.

Designated funds must be approved by the church. No one may establish a "designated

fund" simply by the giving. Requests for creating a new fund must first be submitted tothe Finance Committee. If the proffered gift is outside the scope of the current budget orministry of the church, they shall bring recommendations concerning the offer to thecongregation for approval.

No tangible property may be received by the church without first being accepted by theFinance Committee.

Separate persons shall be responsible for having custody of church offerings. Thesepersons will consist of money counters and a depositor. A minimum of three churchmembers is required to count church offerings at any time.

There will be a requirement of two signatories on all checks.

There will be no staff members participating in the collecting, counting or depositing ofchurch offerings.



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All requests for reimbursements will be submitted on a "Request for SundryDisbursement" form which will be submitted to the treasurer with the proper signatureapprovals.



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A. All financial accounts of _________ MCC will have al l members of the Board ofDirectors as signatories. In the event that the Treasurer performs the accountingfunctions of the church, the Treasurer shall not be a signatory on the account.

B. The counting of all offerings will be done by two persons, as directed by the Board ofDirectors, and the offerings shall be deposited into the appropriate church bankaccount.

C. Cash offerings shall not be used to cash personal checks.

D. All requests for funding outside of the budget with the exception of designated gifts,

shall be in writing and shall include a written detailed estimate. The funding is subject toBoard approval and the Board shall determine the source account for the funding.

E. An audit of the churchs finances shall be accomplished annually. Such an audit shallbe conducted by an independent third party selected by the Board of Directors.

F. A budget shall be prepared by the Finance Committee and presented to the Board ofDirectors at a regular Congregational Meeting annually and shall be approved by asimple majority. The budget may be changed as required at any CongregationalMeeting.



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1. Authorization for signatures necessary on contracts, checks, and orders forpayment, receipt or deposit or withdrawal of money, and access to securities of

___ MCC shall be provided by resolution of the Board.2. Any individual authorized to purchase goods and/or services for the ___ MCC

shall follow the procedures set forth in these policies and the Internal ControlProcedures Manual.

3. The finance committee shall be responsible for reviewing and recommending anannual operating and a capital budget to the Board for review and sending to theCongregational Meeting.

4. The Congregational shall be responsible for approving the annual operating andcapital budgets.

5. No expense shall be incurred in excess of the total budgetary appropriationswithout prior approval of the Board.



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Quick Reference Guide: How Debits and Credits Work in

Accounting

How Debits (Dr) and Credits (Cr) affect accounts:

For Asset accounts, debits increase the balance and credits decrease the balance. For Liability accounts, debits decrease the balance and credits increase the balance. For Equity accounts, debits decrease the balance and credits increase the balance. For Income accounts, debits decrease the balance and credits increase the balance. For Expense accounts, debits increase the balance and credits decrease the balance.

Account Type Debit Credit

Asset + -

Liability - +

Equity - +

Income - +

Expense + -

Documents

2 Managing the Money US