Understanding Financial Statements for a Church (2024)

Preparing and understanding financial statements for a church ornonprofit organization is easier if you follow this simple rule:

"knowyour audience"

For example, preparing a financial report to turn into your bankwould be much more detailed than the report you would prepare for yourchurch membership or department head in a nonprofit.

NOTE: you may be required by your bank to prepare your financial statements using the Statement of Financial Accounting Standards (SFAS) Numbers 116 and 117, which describes the way nonprofits should account for contributions, and present their financial statements. Check with your bank or financial institution on which financial statements they require and any other requirements they may need for obtaining a line of credit or loan.

Basis for preparing and understanding financial statements:

• be easy to read so any person studying them will understand your organization’s financial picture;
• be brief and to the point so that the person studying them doesn’t get lost in the details;
• cover all the activities of the organization;
• have a comparison such as a budget or data from a corresponding period of the previous year;
• be prepared in a timely manner.

A financial report for your church members will usually just consist of the contributions and expenses. Financial reports for department heads in a nonprofit might only contain information relating to their department. However, most financial statements are prepared for the church board or governing body and financial institutions.

The principal financial statements for a church or small nonprofit are theStatement of Activity(Income or P/L Statement) and theStatement of Financial Position (Balance Sheet). TheStatement of Cash Flows is sometimes required or desired ... especially if you are tracking liabilities such as a mortgage.

The order in which the statements are normally prepared and the natureof the data presented in each statement are as follows:

• Statement of Activity(Statement of Revenue and Expense)—a summary of your organization’s revenue and expenses for a specificperiod of time, such as a month or year. The Statement of Activity, also known as the Statement of Revenue and Expenses, reflects a church or nonprofits' support and revenue, expenses, and sometimes even the changes in net assets (fund balances) for a certain period of time such as month, quarter, or year. (Note: an Income Statement (Statement of Activity) by Fund in Aplos will show the fund balances at the bottom of the statement, but most accounting software does not show fund balances on the Statement of Activity.)

  This statement shows the church or nonprofit’s source of income and how they used their resources. The form of the statement will depend on the type and size of an organization and the accounting method and software used.

• Statement of Financial Position(Balance Sheet) — shows assets, liabilities, and net assets as of the end of a period such as a month, quarter, or year. Because it shows how the two sides of the accounting equation
  (Assets –Liabilities = Net Assets) it is often referred to as a balance sheet. This is the statement that I use to show fund balances in both of the accounting software that I use. Aplos does it automatically and QBO has to be set up to show them. See Lisa's book: QBO for Churches & Nonprofits for instructions on how to do that.
• Statement of Cash Flows—a summary of the cash receipts and cash payments for a specific period of time, such as a month or a year. If you use credit cards, make payments on liabilities, or purchase assets...this statement should always be part of your reporting package! It takes the "net income" from the Statement of Activity and adds or takes away anything involving cash...such as the principal part of your loan payments.
  

Additional Financial Reports

Some additional reports that I like to include in my client's bookkeeping reports are:

• Budget to Actual: This report is essential for those churches and nonprofits that take the time to create a budget. It shows the difference between what you budgeted for and your actual expenses and donations. It provide crucial information for administrators.

• Account Transaction Detail Report: Details out transactions by account. Don't go into a board meeting without one! You need to be able to give a detailed answer when one of the governing body asks you why office supplies doubled this month compared to last month or why the Youth Ministry expenses went over budget. It is a simple report to run in most accounting software.

• Donation Detail: I use Products/Services (Items in QBDT) to track donations in QBO. I always include a "Donation Detail" report for my bookkeeping clients that track donors and donations in QBO. Go to Reports --> Sales and customers--> Sales By Product/Services Detail or Summary.