Skip to main content

Church Use of GAAP Accounting

Question:

In response to your February 24, 2009, blog posting that suggests, "Unless a church wishes to report its financial results using full GAAP accounting, I recommend recording equipment purchases as expenses and omitting any depreciation concern," I am afraid the church will not have "formal control" over the assets nor a good record (or evidence) of its possession (other than the invoices) when unexpected events occur, say if it is stolen. Is it wise to ignore Generally Accepted Accounting Principles?

Answer:

You may wish to review the full blog posting, but the question allows me to address some important points. Each church should be able to identify the property it owns. Catastrophic events such as fire and vandalism do befall churches. It may be wise to video church property on a periodic basis for this very purpose. Of course, off-site storage of equipment lists will aid greatly in documenting a loss.

My point about using a strict cash basis of accounting does not address this need. My suggestion to use this very simple method relates 1) to the lack of trained accounting personnel in many small churches (including provision for turnover in often voluntary positions) and 2) to the lack of understanding of more complex accounting reports by the common layperson. The use of the cash basis does not excuse these churches from maintaining proper fund accounting for designated gifts.

Churches that have the ability to employ trained personnel should use GAAP. These same personnel will also have the understanding necessary to communicate financial results to others. Several of the Christian organizations that I serve maintain their books on the accrual (GAAP) basis, but budget on the cash basis. This requires trained and experienced accounting personnel but seems to satisfy the need for GAAP accounting systems and for lay-friendly reporting of receipts and disbursements. Readers who want more information regarding these issues may request a copy of a presentation I have given to students of college-level accounting courses.

Question:

What happens to the real and personal property purchased by the church in the event of its liquidation? To whom should it be distributed?

Answer:

These are questions that the church constitution should answer in a manner consistent with local law. Most U.S. church constitutions address this contingency by granting the transfer of its assets to another church or Christian ministry that can carry out the spirit of the original church's mission.

Comments

  1. I would love to see a copy of the presentation you give to college level accounting students because I am part of that category and we never really cover these topics in class.

    ReplyDelete
  2. This presentation is now available on our main website: http://www.ministrycpa.com/?q=alldownloads

    ReplyDelete

Post a Comment

Popular posts from this blog

Housing Allowance and Form 1099-MISC Reporting

Question:

A church provides its minister a housing allowance, but for other purposes it believes that it must report the full amount of compensation (including the non-taxable housing allowance portion) on Form 1099-MISC (in order to demonstrate the full earnings of the minister). If the church reports his compensation,including the housing allowance, on Form 1099-MISC as taxable income, will he be able to deduct his housing expenses somewhere else on the Form 1040?

Answer:

This questions brings up a couple of issues. First, most ministers are properly classified as employees who receive Form W-2, not as independent contractors who receive Form 1099-MISC. On Form W-2, Box 1 for taxable compensation is reduced reflecting the church's designation of a portion of his pay as non-taxable. Then in Box 14, it typically reports as a memorandum item his additional non-taxable, housing allowance compensation. In the situation addressed in the question, this Form W-2 reporting may or may not a…

Review: Form 1099 Payments to 501(c)(3) Organizations

Question:

A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC?

Answer:

We have written similar blog posts on this topic in the past (listed below), but we figured it was a good time for a review. 

Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The 2015 Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC. 

The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC:
Rent paid to an individual (non-corporation)Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers)Support sent directly to missionariesHere are some similar blog posts that we have written in the past:

Form 1099 for Payments to Other Ministries
Form 1099 for Non-profit?
Fo…

Gifts Paid Out of Church Funds: Form 1099-MISC Requirements

Question:
 A church gave a wedding gift of $1000 to a couple who are church members. No goods or services were provided by the couple in exchange for the gift.  Is a Form 1099-MISC required? 
Answer: In the following answer, we assume that the couple are not employees of the church from whom the gift could not be viewed as compensation for their services. Also, the amount seems to be small enough to avoid any concerns of "private inurement."

Accordingly, no Form 1099-MISC is required. According to the 2017 IRS Instructions for Form 1099-MISC a Form 1099-MISC is only required for payment of goods or services. The requirements are as follows:
"File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year:  At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8);  At least $600 in:  1. Rents (box 1);  2. Services performed by someone who is not your …