Basic Accounting for Ministers

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Basic Accounting forMinisters
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Definition of Accounting

• Accounting is the systematic compilation of
  financial information for use in making wise
  economic decisions on behalf of a ministry.

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Duties of Accountants

• Accountants observe the activities of a church
  and from the various events and transactions that
  take place identify those that are evidence of
  economic activity.
• They record the monetary value of these events
  and transactions.
• They classify and summarize information and
  communicate it in financial statements.
• They interpret financial information by
  explaining its meaning, uses and limitations.

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The Accounting Formula (Equation)

• A L E
• Assets Liabilities Equity

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Accounting Terms

• Assets are possession that make up a persons
  total worth (home, car, bonds, checking account,
  savings, etc.).

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Accounting Terms

• Liabilities are debts (mortgage, loans, bills,
  taxes, etc.).

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Accounting Terms

• Equity is the value of property in excess of
  claims or liens against it.

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Accounting Terms

• Net Worth is the difference between total assets
  and total liabilities.

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Median net worth of households by age of
householder, percent change 1992-1995, in 1995
dollars
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Accounting Terms

• Solvency is when the total value of ones assets
  is greater than the total value of ones
  liabilities. Such a person is said to be
  solvent. He is in possession of more money (and
  property that can be converted into money) than
  is owed.

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Accounting Terms

• Liquidity is the capability of ready conversion
  into cash.

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Which is more liquid?

• Stocks?
• Time share?
• Savings Account?
• Checking Account?

• Car?
• Bonds?
• Mutual Funds?
• Loose change?

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Accounting Terms

• Cash Basis is the keeping of records based on
  only cash received and cash disbursed.

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Accounting Terms

• Accrual Basis is the keeping of records based on
  all income earned and expenses incurred (whether
  prepaid or unpaid along with specified periods of
  time).
• Accounts Receivable
• Accounts Payable

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Accounting Terms

• Fiscal Year a term used in connection with the
  closing of the books at the end of a 12 month
  period ending with the last day of any month, but
  December.
• Calendar Year a term used in connection with
  closing the books on December 31.

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Generally Accepted Accounting Principles

• Understandability Financial statements must be
  clear and concise.

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Generally Accepted Accounting Principles

• Relevance Information must be reported so as to
  aid those who make decisions.

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Generally Accepted Accounting Principles

• Timeliness Reports should provide information
  frequently enough for decision makers to control
  and coordinate the plans of the church.

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Generally Accepted Accounting Principles

• Neutrality Financial statements should not be
  biased in favor of one group, but fairly meet the
  needs of a wide variety of users.

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Generally Accepted Accounting Principles

• Verifiability Accounting information must be
  supported with documentary proof (receipts,
  vouchers, etc.).

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Generally Accepted Accounting Principles

• Comparability The records and statements of
  financial data must be kept in a consistent way
  so as to allow for comparisons.

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Generally Accepted Accounting Principles

• Quantifiability Information should be reduced
  to a common denominator or unit (usually the
  dollar), so that facts may be conveniently
  summarized.

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Generally Accepted Accounting Principles

• Completeness This requires a full and adequate
  disclosure of all pertinent facts.

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Generally Accepted Accounting Principles

• Materiality All significant and material
  information and transactions which may affect the
  decisions to be made must be disclosed.

Pastors new chair.
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Generally Accepted Accounting Principles

• Historical Costs The amount of money actually
  exchanged in a transaction is the amount used as
  a basis for the valuation of goods or services
  acquired (as opposed to current market values).

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Generally Accepted Accounting Principles

• Entity Each church is viewed as a specific and
  separate entity distinct from its officers, and
  other units (district office, etc).

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Generally Accepted Accounting Principles

• Conservatism Accountants have generally felt
  that they serve churches best by adopting a
  conservative approach (i.e., choosing the
  alternative wit the most favorable effect on the
  churchs equity or net worth).

The new parsonage
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Generally Accepted Accounting Principles

• Going Concern In the absence of evidence to the
  contrary, accountants assume a continuity of
  existence and an environment similar to the one
  in which the church currently finds itself.

Foreclosure
Bankrupt
Evicted
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The next few pages contain sample financial
reports.
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Balance Sheet
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Boeing
http//www.boeing.com/companyoffices/financial/fin
reports/midyear/midyear96/midyear96.html
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Statement of Financial Position
THE TIBET FUND STATEMENT OF FINANCIAL POSITION
DECEMBER 31, 2001
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Statement of Activity
http//www.familylife.com/donations/financial.asp
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Boeing Cash Flow Report