Depreciation Entries for Churches

Question:

We have a church valued at $351,000.00 which includes land of $120,000.00. How long should we depreciate the church for and will a parsonage be depreciated for the same period?

Answer:

This question brings up two important points.

1. Assuming that the church is best served by using an accrual basis of accounting in accordance with Generally Accepted Accounting Principles (GAAP), then the church property's value is not the basis for depreciation. Original cost is used. The estimated useful life that many organizations use for real property is 50 years. The same holds true for the parsonage.

2. In my opinion, many small churches are better served using the modified cash basis. Lay people and pastors alike have a better chance of understanding the reports. If external parties demand it, then GAAP may be necessary. Check out the New Downloads on my website, www.MinistryCPA.org. Select the presentation: Church and Christian Ministry Financial Management option. It's a MS--PowerPoint presentation that I've delivered in a few settings that explains my points in greater detail. As I propose the use of the modified cash basis by churches, no depreciation entries are required.