Everything You Need to Know About Church Accounting Software
The mission of Christian ministry is to express and spread the faith, particularly the gospel, or good news.
This can be done in various ways, from hosting church services, outreach opportunities, or community service.
Christian churches exist to make a difference in the world by serving the community and investing their time and resources into the lives of those around them in order to help others walk in close relationship with Christ.
However, in order to operate a church, of course there are finances involved. Because of the processes for running churches and the particulars in place with how to use these finances, many places of worship choose to use an accounting software program specifically designed for the church's unique needs.
In order to operate effectively in the financial realm of a church, funds need to be designated and managed. Payroll for staff needs to be regulated. And tithes and offerings need to be tracked.
In addition, non-profits and faith-based organizations do not operate to maximize profit, so their taxes, credits, and ledgers will look differently from traditional businesses. Though some of the accounting requirements of churches could be regulated with generic business software, such as QuickBooks, they will quickly see the benefits of having a system designed for religious associations.
In this post, we will discuss what church accounting software is and the differences between churches and for-profit businesses; why you should use a church accounting system; and the features and benefits of church financial software.
What is church accounting software?
Fiscal responsibility, especially for churches, is essential. Having accounting software that can handle the complex finances of churches and non-profits is necessary to maximize ministry opportunities and remain compliant during tax season. Church accounting software is computer technology that is specifically designed for the unique intricacies of ministry finances.
Though there are similarities to traditional accounting software, it is created to operate everything related to church finances. It includes regular accounting features like balancing the books, creating reports, and paying vendors and staff, but it also has the ability to track tithes and offerings and organize and manage various funds.
Good church accounting software should be easy enough for even anyone to use, because more often than not, many churches don't even have an experienced accountant on staff. So, the program should allow a typical administrator or staff member the ability to track and manage everything related to the financial aspect of a religious organization.
Differences between church accounting and accounting for businesses.
Businesses have very different financial goals in comparison to churches. For a business, the bottom line is profit. For religious organizations and non-profits, their goal is to achieve their organization's mission. Of course, both need revenue to reach their goals, but faith-based entities use it for reasons other than simply trying to make money.
To understand the importance of church-based accounting software, we need to understand the contrast between for-profit businesses and non-profit institutions.
For-profit vs. not-for-profit
As one might expect, a for-profit business is "established, maintained, or conducted for the purpose of making a profit." Stakeholders in these businesses are most concerned with the bottom line.
On the other hand, founders and governing boards of non-profits and churches are focused on tracking contributions and allocating funds and resources based on their mission. Their existence isn’t to make a profit, thus the title: non-profit. This is the category under which churches and religious organizations fall.
One distinction between traditional companies is ownership. Various individuals and entities can be owners or shareholders of a for-profit business. These owners benefit from their company's earnings because value increases and they receive a portion of the revenue.
Churches, on the other hand, are not owned. No proprietor possesses a portion of the organization. Under the Financial Accounting Standards Board (FASB), specific accounting principles are in place for non-profits. And each church is obligated to the financial laws of the state in which it resides - being run by pastors, its board, and staff. Since there are no owners, the church's accounting system doesn't include owner's equity or retained earnings accounts.
Another significant difference is the practice of fund accounting. Non-profits have an accounting method that manages various types of funds while businesses have one general ledger. For churches, this is the emphasis on accountability of how money is being used versus profitability. Depending on the purpose of the fund category, assets and liabilities are grouped, which makes donations (or revenue) restricted in their use and can only be distributed for their specific purpose. For example, if a church is hosting a giving campaign to raise funds for a new building project, any of the money received specifically for this project can only be used for this purpose. The church cannot use that money to pay the staff or host a marriage retreat without getting prior permission.
A similarity of businesses and churches is that they both can earn revenue by selling goods or providing services. However, the major difference is that the majority of what churches do receive comes from contributions, like tithes and monetary donations. Because of this, they have to keep track of the money that is received and which fund it will be used for. They also must be able to provide statements to their contributors. Following other tax-related regulations regarding revenue is also a requirement for churches.
Terminology used by churches is different than businesses. For example, instead of retained earnings, non-profits categorize them as net assets. Net income is the excess of revenues over expenditures. These uses of varying terms can make it challenging for churches to adopt a secular bookkeeping service to their specific needs. Though it isn't impossible to do, having accounting software designed for churches will help organize everything finance related.
Why you should use accounting software designed for churches:
It is created for churches.
As mentioned previously, churches have incredibly unique needs regarding how they handle their fund management, receivables, payables, and ledgers. Having software designed with the church in mind can be extremely helpful. However, because of the financial particulars and tax considerations that churches face, a popular program like QuickBooks can quickly become overly complicated because they do not specialize in non-profits like religious organizations. As a church or ministry, you have to meet the needs of your organization as well as outside agencies and governing boards.
It saves time and money.
With a program created for ministry, you can streamline your church's financial processes and actions, which will help reduce administrative work and improve efficiency. In addition, you won't have to convert processes from a traditional business standpoint to fit within FASB principles, which will save time. Your ministry can also save money by ensuring funds are adequately placed and used for the specified purpose, minimizing fines and penalties.
Money can be managed from anywhere.
With a cloud-based accounting program, you can gain secure access to your church finances at any time, from anywhere. You’ll be able to view data and reports in real-time. And with automatic data backups, you'll have peace of mind because you won’t have to worry about losing important information. If someone on your team isn't in the office but needs to balance the books or check the budget, they can do so from any device.
Church Budgeting Resources:
Import data from existing systems.
With the best church accounting software, you will easily import data from any existing system. For example, carry over your historical data from spreadsheets or other software without having to do a lot of complicated transfers. Churches will stick with an outdated, traditional system because it seems too difficult to switch over their current donors and their information. But with the right church financial software, this can be done seamlessly.
Features of modern church financial software:
All companies need some form of tracking financial data. A general ledger is a record-keeping system that monitors debit and credit transactions. These transactions are segregated by type. For churches and non-profits, they are generally broken down into even smaller subgroups to keep accurate records.
With church accounting software, the general ledger should be able to operate true fund accounting that meets the specific needs of that church. It acts as the central hub for all financial information.
The ledger will simplify the budgeting process because departments and staff can create clean, accurate records, as well as both standard and custom reports. The general ledger in an accounting system designed for churches will meet the financial accounting standard requirements (FASB117), too.
Benefits of Elexio with Shelby Financials Ledger:
- Provides flexible account structure for customized chart of accounts and reports
- Department worksheets and Excel® import/export
- Automatic deposits from member contributions and pledge postings
- Delivers non-profit reporting that reflects church ministry
Even though churches are non-profits, that doesn't mean they don’t have people on staff. It take a great deal of effort to operate a church and make a difference in the community. With a payroll system designed for ministry, managing payroll, deductions, benefits, special clergy allowances, and personal time is easier because it is made to accommodate the church’s needs.
The payroll application should comply with federal tax and reporting requirements. It is also beneficial to have payroll automatically allocated to funds and departments and be automatically tracked in your general ledger, so you don't have to duplicate data entry or do special imports.
Benefits of Elexio with Shelby Financials Payroll:
- Guides the user step-by step through the payroll process
- Handles special clergy allocations and benefits
- Saves costly checks by printing direct deposit receipts on standard copy paper
- Satisfies all your data needs with its versatile reporting system
Accounts receivable represent any money that is owed for goods or services that have already been purchased. This money is usually collected at a later time.
Church accounts receivable help to track invoices, due dates, payments, "customers," deposits, and more. You can get an accurate picture of your true financial position if receivables are connected to your chart of accounts. Create invoices and statements through Revenue Centers that can have multiple item codes to bill for specific services, activities, etc.
Benefits of Elexio with Shelby Financials Accounts Receivable:
- Boosts productivity
- Streamlines management
- Uses your central chart of accounts
On the other end, accounts payable is any money owed by a company (or in this case, a church) to its creditors. Whether a business, church, or non-profit, it is the goal and obligation to pay off short-term debt to vendors or suppliers.
Using a true fund accounting system will help your church gain instant access to the financial information you need. First, track how much and where your money needs to go. Then, sync it to the general ledger to have a solid understanding of the financial status of your church. Better manage cash flow by entering invoices as they’re received and create and print the right checks with detailed filter options.
Benefits of Elexio with Shelby Financials Accounts Payable:
- Secure access anytime, anywhere via the web
- User permissions by function (and fund)
- Automated data backups and software and tax table updates
Having access to financial reports is extremely important for businesses and churches, too, mainly because churches have a wide range of donors, pastors, and financial councils that need to view such reports.
Connecting church staff to their accounting records is crucial to maintaining accountability and up-to-date financial status. Plus, standard and customized reports will help with the church budget and to identify needs.
Benefits of Elexio with Shelby Financials Reporting:
- Take the stress out of providing financial statements to those who need them
- Get instant access to your church financial reports securely on the web
- Satisfy all your data needs with a versatile reporting system
Having a church accounting system that is integrated with your church management software (ChMS) and your online giving is critical. It will help streamline all of the complicated processes and save valuable time. There’s no need to login and manage different technologies from different vendors.
Be an excellent steward of your two most valuable resources: people and finances. Decrease errors caused by manual data input. Reconcile contributions and receipts with online giving and accounting. Track your members and donations all in one easy-to-use system.
Benefits of integration of Elexio with Shelby Financials:
- Built to provide transparent financial visibility
- Streamline your existing accounting processes
- Have one system in place for multiple functions
Accounting software built for the church is extremely important because of how effective it is for ministry. Whether you're just starting out or looking to switch accounting systems, Elexio with Shelby Financials can save you time and help you successfully steward your church finances.
Connect with us for world-class support. We'll get your questions answered, point you in the right direction, and ensure your success. So, contact us today to get started!
New to church management? You can learn about it here.