The Ultimate Guide to Church Accounting Software

What is church accounting software?

Churches desire to operate with fiscal responsibility, especially because the majority of their funds are provided from donors within the congregation. Having accounting software that can handle the complex finances of churches and non-profits is necessary to maximize ministry opportunities and to stay compliant when tax season comes.

Church accounting software is similar to traditional accounting technology, but it's constructed to handle the unique intricacies of church finances. It includes features like tracking tithes and offerings, balancing the books, creating reports, organizing funds, and paying staff as well as vendors.

Even if the staff lacks accounting skills, a good church accounting solution will be easy enough for anyone to carry out simple accounting tasks. With it, church staff should be able to track and manage everything related to the financial aspect of a religious organization.

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Differences between church accounting and accounting for businesses.

Businesses have very different ambitions in comparison to churches, particularly when it comes to finances. For a business, the bottom line is profit. For religious organizations and non-profits, their goal is to achieve their organization's mission and vision. Of course, both need revenue to reach their goals, but faith-based entities use the revenue for other purposes.

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." The stakeholders in a business are most concerned with the bottom line and if they’re making money. On the other hand, founders and board members of non-profits and churches are focused on tracking contributions and allocating those funds and resources determined on the mission. They do not exist with the intent to make a profit, thus the title: non-profit. Churches and religious organizations fall under this category.

Key Differences

Ownership

Various individuals and entities can be owners or shareholders of a for-profit business. This is one distinction between traditional companies and churches. These owners benefit from their company's earnings because they receive a fraction of the revenue or an increase in value.

Contrarily, churches are not owned because no individual retains a percentage of the organization. Under the Financial Accounting Standards Board (FASB), specific accounting principles are in place for non-profits. Because there are no owners, the church's accounting system doesn't include owner's equity or retained earnings accounts.

Fund Accounting

Fund accounting is another significant difference. Companies have one general ledger, and though non-profits also have a general ledger, they have an accounting method that manages various types of funds. For churches, this is the emphasis on accountability of how the money is being used versus profitability.

Assets and liabilities are grouped according to purpose, which makes donations (or revenue) restricted in their use. 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 for the electric bill or host a youth camp without getting permission beforehand.

Revenue Received

Both businesses and churches alike can earn revenue by selling goods or providing services. Still, the main difference is that the majority of what churches receive comes from contributions, like tithes and monetary donations. Because this money is donated, they have to keep track of what amount is received and which fund it is being used for. They also have to be able to provide statements to their contributors along and follow other tax-related regulations.

Accounting Terminology

Another difference, though it may seem trivial, is terminology. 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 difficult for churches to adopt a regular bookkeeping service to their specific needs. Though it isn't impossible to do, it can be dizzying and take up more time. Having accounting software designed for churches will help to appropriately categorize everything finance-related.

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Why you should use accounting software designed for churches:

It is created for churches.

Religious organizations have incredibly unique needs regarding how they handle their fund management, receivables, payables, and ledgers. 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. Having software designed with the church in mind can be extremely helpful.

It saves time and money.

Reduce administrative work and improve efficiency while streamlining your church’s financial processes. Church accounting software will save time because you won't have to convert from a traditional business standpoint to fit within FASB principles. Your ministry can also save money and stress by ensuring funds are adequately placed and used for the specified purpose, reducing fines and potential closure.

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. Because it’s on the web, you can view data and reports 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. Church bookkeeping through the Cloud will give you peace of mind with automatic data backups. You won’t have to worry about losing any important information or data.

Import data from existing systems.

Easily import data from any existing system with a reliable church accounting system. Bring your historical data from spreadsheets or other software without having to do a lot of complicated transfers or manual copy and pasting. One of the main reasons churches persist with an outdated, traditional system is because it seems too difficult to switch their current donors and their information. However, with the right church financial software, this can be done seamlessly.

Features of modern church financial software:

Ledger

Any company needs some way to track financial data, whether it’s a non-profit or for-profit organization. A general ledger is a record-keeping system that monitors debit and credit transactions. These dealings are separated by type. For churches and non-profits, they are generally broken down into even smaller subgroups because they are required 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. The ledger simplifies the budgeting process 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, so you won’t have to worry about that on top of everything else.

Benefits of Church Office Online 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

Payroll

Just because churches are non-profits doesn't mean they don’t have people on staff. It takes effort to run a church and make a difference in the community. With a payroll system designed for churches, managing payroll, deductions, benefits, special clergy allowances, and personal time is easier because it is made with ministries in mind.

Church payroll systems should automatically be tracked in the general ledger, that way you don't have to duplicate data entry or do special imports. It is also valuable to have payroll automatically allocated to funds and departments.

Benefits of Church Office Online 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

Receivables

Accounts receivable classifies any money that is still owed for goods or services that have been purchased already. This money is usually collected later.

Church accounts receivable help to track invoices, due dates, payments, "customers," deposits, and more. You can also get an accurate picture of your true financial position if receivables are connected to your chart of accounts.

Benefits of Church Office Online with Shelby Financials Accounts Receivable:

• Boosts productivity
• Streamlines management
• Uses your central chart of accounts

Payables

On the contrary, accounts payable is any money owed by a company (or in this case, a church) to its vendors or suppliers. Whether a business, church, or non-profit, it is the obligation to pay off short-term debt to creditors.

Applying 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.

Benefits of Church Office Online 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

Reporting

Having access to financial reports is extremely important for businesses, and especially for churches because religious institutions have a wide range of donors, pastors, and financial councils who need to be able to view such reports.

Connecting church staff to their accounting records is crucial to maintaining accountability. Only having one person access the accounting system can be detrimental. Reports also help keep everyone up to date with your church’s financial status.

Benefits of Church Office Online 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

Integrations

It’s important to have a church accounting system that is integrated with your church management software (ChMS) and your online giving platform because they should be able to “talk” to each other. This will help streamline all of the complicated processes and save valuable time.

Reduce the number of 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 the integration of Church Office Online with Shelby Financials:

• Built to provide transparent financial visibility
• Streamline your existing accounting processes
• Have one system in place for multiple functions