The Complete Guide to Church Accounting Software
Though there are many different denominations and types of churches, most of them operate with the goal helping people grow in their relationship with God and making a difference in the community around them. By serving and investing time and resources, they can make an impact for the greater good.
Because of the processes for running churches and the finances involved, many places of worship choose to use an accounting software program especially designed for the church's varying needs. In addition, because non-profits and faith-based organizations do not operate to maximize profit, their taxes, credits, and ledgers will look differently from traditional businesses.
Though some of the accounting requirements of churches could be coordinated with generic business software such as QuickBooks, they will quickly see the benefits of having a system designed for religious associations. For churches, specific funds need to be designated and managed; staff payroll needs to be regulated; and tithes and offerings need to be tracked.
This article will cover what church accounting software is, 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?
Churches desire to operate with fiscal responsibility and having accounting software that can handle the complex finances of churches and non-profits is necessary to maximize ministry opportunities. It is also helpful in remaining compliant during tax season. Church accounting software is computer technology that is specifically designed for the unique intricacies of ministry finances.
It is similar to traditional accounting software, but it's built to handle everything related to church finances. It includes typical features like the ability to balance the books, create reports, and pay vendors and staff. But it can also track tithes and offerings, organize funds, and more.
With many churches unable to have an experienced accountant on staff, it’s important to have church accounting software that is easy enough for anyone to use. With it, church staff, whether they’re trained in accounting or not, should be able to track and manage everything related to the financial aspect of their religious organization.
What’s the difference between church accounting and accounting for businesses?
Churches and businesses have very different goals, including financial goals. For a business, their bottom line is profitability. For religious organizations and non-profits, their intention is to achieve their organization's mission. Of course, both need revenue to reach their goals, but faith-based entities use it to serve the people around them, rather than simply trying to increase their wealth. (Though many businesses also exist to make a difference, too).
In order to understand the importance of church-based accounting software, we need to understand the contrast between for-profit businesses and not-for-profit institutions.
For-profit vs. not-for-profit
As expected, a for-profit business is “established, maintained, or conducted for the purpose of making a profit." Stakeholders are most concerned with the bottom line. On the other hand, founders and board members of non-profits and churches concentrate on tracking contributions and apportioning funds and resources according to the mission of that institution. They don't exist to make a profit, thus the title: non-profit.
One variance between traditional companies and churches is that individuals and entities can be owners or shareholders of a for-profit business. These owners benefit from their company's earnings because of value increase, and they receive a portion of the revenue.
Churches, on the other hand, are not owned. People don’t possess a percentage of the organization. And under the Financial Accounting Standards Board (FASB), specific accounting principles are in place for non-profits. Each church—being run by pastors, its board, and staff—must follow the financial laws of the state in which it resides. Because there are no owners, the church's accounting system doesn't include owner's equity or retained earnings accounts.
Another significant difference is the idea of fund accounting. Businesses have one general ledger, and while non-profits also use ledgers, they particularly focus on an accounting method that manages various types of funds. For churches, this is the accountability of where money is going or how it’s being used versus profitability.
Donations are grouped according to purpose, which makes them restricted in their use and can only be distribute for those specific intentions. For example, if a church is hosting a giving campaign to raise funds for a new campus building, any of the money received specifically for that project can only be used for that purpose. The church cannot use that money to pay for cleaning services or host a women’s retreat without getting prior permission.
A similarity between businesses and churches is that they can earn revenue by selling goods or providing services. However, the main difference is that the majority of what churches receive comes from contributions, like tithes and monetary donations. Like we mentioned before, they must keep track of what money is received and which fund it will be used for. They also need to be able to provide statements to their contributors and follow other tax-related regulations that are specific to non-profits.
The terminology used for church accounting differs in some aspects in comparison to corporations. For example, instead of retained earnings, non-profits categorize them as net assets. “Net income” is explained as the excess of revenues over expenditures. These uses of varying terms can make it a challenge for churches to adopt a regular 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.
It may seem obvious, but the most important reason is that it is created for the church. 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 in all of these areas. And because of the financial particulars and tax considerations that churches face, a popular program like QuickBooks can quickly become overly complicated because they are specific to businesses, not religious organizations.
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, church accounting software will save time because you won't have to convert processes from a traditional business standpoint to fit within FASB principles. You’ll also decrease the amount of manual input and potential errors that take time to fix. Your ministry can save money and trouble by assuring funds are appropriately placed and used for the specified purpose.
Money can be managed from anywhere.
You can gain secure access to your church finances at any time, from anywhere with a cloud-based accounting program. View data and reports immediately, in real-time. 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. And one of the best parts about a cloud-based system is the automatic data backups, which will provide your team with peace of mind.
Import data from existing systems.
One critical aspect about good church accounting software is the ability to import data from any existing system. For example, bring your historical data from spreadsheets or other software without having to do a lot of complicated transfers. One of the main reasons churches stick with an outdated, traditional system is because it seems too difficult to switch over current donors and their information. But with the right church financial software, this can be done seamlessly.
Features of modern church financial software:
It’s obvious that all companies need a way to track financial data. A general ledger is a record-keeping system that monitors debit and credit transactions which 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. That’s where money is appropriately placed and then used according to purpose.
The ledger simplifies the church budgeting because departments and staff can view reports and track how finances are compared. The general ledger in an accounting system designed for churches will meet the financial accounting standard requirements (FASB117), too.
Benefits of SimpleChurch 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
Though churches are non-profits, they still need a team of staff to carry out the operations of the organization. It takes a lot of hard work to run a church and make a difference in the community.
Manage salaries and payments, deductions, benefits, and special clergy allowances through an accounting system with a church-based payroll method.
Your system should automatically be tracked in your general ledger, so you don't have to duplicate data entry or do special imports. It is also beneficial to have payroll automatically allocated to funds and departments.
Benefits of SimpleChurch 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 organize any money that is owed for goods or services that have already been ordered but not yet paid for. This money is usually collected later.
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.
Benefits of SimpleChurch with Shelby Financials Accounts Receivable:
- Boosts productivity
- Streamlines management
- Uses your central chart of accounts
Contrarily, accounts payable is any money owed by a company (or in this case, a church) to its suppliers. Whether a business, church, or non-profit, it is the obligation to pay off short-term debt to vendors or creditors for goods or services purchased.
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—which suppliers still need paid, etc. Then, sync it to the general ledger to have a solid understanding of the financial status of your church.
Benefits of SimpleChurch 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
Financial reports are critical for businesses and churches alike. Because religious organizations have a wide range of donors, pastors, and financial councils that need to view such reports, it’s important to have the access and ability to share any necessary information in those findings.
Connecting church staff to their accounting records is crucial to maintaining accountability and up-to-date financial status. These reports and records will help various departments know their position in regards to the budget and what monies they have allocated for that purpose.
Benefits of SimpleChurch 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 platform is crucial. This is because it can streamline the complicated processes and save valuable time.
Reduce errors caused by manual data input. Since these technologies work together, you won’t have to transfer data by hand. You can reconcile contributions and receipts between online giving and accounting. Track your members and donations all in one easy-to-use system.
Benefits of the integration of SimpleChurch with Shelby Financials:
- Built to provide transparent financial visibility
- Streamline your existing accounting processes
- Have one system in place for multiple functions
Having an effective, easy-to-use accounting software is important when running a ministry. Why make it harder than it must be by using a business-minded program rather than one that’s created for the Church?
Whether you're a church plant that’s just starting out or you’re a well-established ministry looking to make the switch, SimpleChurch with Shelby Financials can save you time and help you be a great steward of your church finances.
Connect with us for world-class support. We'll answer your questions, point you in the right direction, and ensure your success. Contact us today to get started!
New to church management? You can learn more about it here.
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