Church Bookkeeping: What Is It & How to Start
Like any organization, a church needs to have its financial affairs in order.
That’s why most of them these days employ bookkeepers, who are there to keep tabs on the religious body’s financial incomings and outgoings.
At ChMeetings, we understand as well as anyone the importance of church bookkeeping.
This article will take you through the basics of church bookkeeping and show you how to get started on keeping your church’s financial records up to date.
What Is Church Bookkeeping?
Church bookkeeping involves recording, organizing, and planning the financial matters of a church.
If you donate to a church, a bookkeeper will write down the exact amount in a logbook or ledger along with the date of the donation and your name.
Similarly, when the church disburses its own money, a bookkeeper will make a note of the outgoing in the logbook.
Sources of Church Income
A church’s income comes in many forms, including:
- Tithes, gifts, donations.
- Pledges and bequests.
- Returns on investments.
What Is the Tax Regime of a Church?
Most churches in the United States are considered non-profit organizations. This means that they fall under the 501(c)(3) tax code and therefore aren’t obliged to pay federal income taxes.
As a result, a church bookkeeper will use a different method of recording the organization’s financial information than a corporate accountant uses.
A corporate accountant will use for-profit accounting and focus on revenues and expenses, which are usually related to the sales and services they provide to their customers. In other words, a corporate accountant will focus on profitability.
Non-profit organizations like churches focus more on accountability. They allocate funds to different ‘buckets’, each representing a specific use or need of the church. This way, church members know exactly where their tithes and gifts are going.
Why Employ a Church Bookkeeper?
Bookkeeping is something that every church—no matter the size—should practice.
Here are a few benefits the church will enjoy when they take on a professional bookkeeper:
They Help You Keep Track of Your Church’s Financial Position
A good bookkeeper can help generate detailed financial reports, like balance sheets and income statements, for your organization. The information contained there should give you an important insight into how your church is faring when it comes to money matters.
They Let You Demonstrate Your Accountability to Your Congregation
Most churches are non-profit organizations that rely on tithes and donations to meet their day-to-day costs.
Therefore, it’s important—morally and legally—that churches be as transparent as possible about their income and expenditure.
Like we said earlier, a church bookkeeper organizes the financial data of a religious body using a unique system that focuses on accountability rather than profit.
Publicizing these records among your congregation is a good way to show them how their money is being used. In addition, being transparent with your finances showcases your church’s integrity among the general population and is a good way of attracting new members!
They Make Banking Operations Run Smoothly
There’s more to bookkeeping than managing your church’s finances. A bookkeeper also plays an important role when it comes to applying to a bank for a loan or some credit.
It’s not uncommon for churches to take out loans for expensive capital projects, such as building upgrades and repairs.
Banks are less likely to issue a loan if they can’t see proper financial records, like income statements and balance sheets. By having a bookkeeper in your organization, you give yourself a better chance of winning over the bank manager and getting him to grant you that loan that will finally let you fix that leaky church roof!
They Help You Avoid Penalties
Labor laws apply to people who work for a church the same way they do for any professional organization.
If someone works for you and receives a payment, you have to classify them as either an employee or a contractor. Typically, if you classify people as employees, then you are obliged to apply payroll taxes to their salaries.
If you confuse the two and tell the IRS that someone is a contractor when in fact they are on your payroll, your church will become liable for a penalty or fine by the tax authorities.
A bookkeeper can help you avoid confusion (and fines!) by reviewing your organization’s salary and contract data so that you can stick to the IRS guidelines at all times.
How to Start Bookkeeping for Your Church
Even if you haven’t started to keep serious financial records for church, it’s not too late.
Here’s how to get started.
Use Church Management Software
If you operate a small church with few incomings and outgoings, you may want to handle the bookkeeping yourself with a simple spreadsheet or physical ledger.
Church management services like ChMeetings can make it easier for you to fill your ledgers.
For example, we have an online donation feature that, when used, will generate a receipt. You can use these receipts to write exactly how much was pledged or donated to the church!
There are also many specialized accounting software for churches that you can use if you’re planning to digitize your church’s accounting.
Use a Professional Church Bookkeeping Service
These services use certified bookkeepers and accountants to maintain your church’s financial records. They will be able to help you build your financial documents from the ground up quickly and effectively.
And since they’re fully qualified, they are a safer bet than doing the bookkeeping yourself. Even if your church has a 501(c)(3) tax code, you will still have to file with the government from time to time. A bookkeeping service will ensure that all your papers and records are in good order when you do.
Bookkeeping services are contractors, so they’re less expensive to hire compared to a full-time bookkeeper.
Employ an In-house Bookkeeper
Small to medium-sized churches may not be able to afford an in-house bookkeeper, but if your church is large, you should consider hiring a professional or a volunteer to handle your finances.
Large churches will typically have substantial financial operations to perform. Sorting out tithes, contributions, and donations and allocating capital for projects and events can become overwhelming if you don’t have professional help.
In the US, the average church bookkeeper earns around $32,000 per year – not a massive amount of money and if your church has hundreds of thousands or even millions of dollars in its coffers, a good bookkeeper or accountant is a necessary investment.
Tips for Doing Church Bookkeeping
If you decide to take on church bookkeeping yourself here are a few tips that you can use to do a good job.
Be Discrete When It Comes to Contributions and Gifts
Contributions and gifts are personal. That’s why it’s important to be as discreet as possible when you handle them in your logs and ledgers. While the church’s total income should be publicized to the congregation, the details of the transactions (who they come from, for what occasion, etc.) should remain secret.
Every month, set out your logs and carefully reconcile the transactions contained in them.
Pay close attention to the ledgers that have a lot of entries, such as the ones that record credit card payments and activities in the church’s bank accounts. By doing so you make it easier to create budget reports and income-expense statements.
It’s a good idea to have a third-party audit the numbers once you’re done. This will ensure that no errors have crept into your recordkeeping.
The receipts generated by the online giving feature of ChMeetings can be a good source to base your auditing.
Make Year-End Giving Statements
Every donation made to a 501(c)(3) organization is tax-exempt. However, the IRS requires that every sum received over $250 must be publicly acknowledged and reported.
At the end of the year, you can publish reports on all of the large donations made to the church. Members and donors will definitely appreciate your transparency on the financial front.
ChMeetings is one of the most trusted church management platforms out there.
Our app provides you with all the tools you need to run your church’s affairs. It comes packaged with a host of user-friendly features, such as membership management, event organization, and much more.
You can sign up for free and begin using the app today!