Posting designated gift contributions to equity accounts

Question:

Why is it best to credit donor designated contributions to Designated Fund Equity accounts rather than Income accounts, as you propose in your recent post? ("Debits and Credits for Designated Gifts")

Answer:

In most cases, the Income accounts in QuickBooks relate to the receipt of General Fund contributions. At the end of each fiscal year, those Income accounts close into the balance sheet General Fund account. The same process is followed regarding General Fund expenses.

The effect of posting designated gifts and disbursements to Income and Expense accounts which are closed into the General fund balance combines them with all other financial transactions thus zeroing out any remaining unexpended designated gift amounts.

Some ministries have avoided this by keeping a second set of records, which is unnecessary in our opinion. A charitable organization will naturally want to maintain its Designated Fund balances which will carry over from one year to the next when portions of the Designated Gifts have yet to be disbursed.

We recommend posting only undesignated gifts to Income accounts because they are used to support General Fund activity. The church's yearly budget determines the spending of the General Fund. In cases when a gift is designated by a donor, the donor determines the spending of the gift, pending approval of the church.

Despite the above simple approach, some ministries still wish to produce a Profit and Loss Statement for specific categories of Designated Fund activity. If a church is using QuickBooks, it can set up multiple Income Statements where each transaction can be associated with a specific Class. This enables a separate Profit and Loss Report to be available for the General Fund and for the desired Designated Fund activity. The total of all Classes ultimately gets closed into a single equity account on the balance sheet which itself must be separated for General Fund and Designated Fund components once the year-end is reached.

For more information on Classes see "QuickBooks Classes for Church Ministries".

Comments

Rental of a Church Parsonage to a Non-Minister

Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant. IRS Publication 598 states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property. However, a second concern not a...

How can my ministry expenses be covered by the church?

How can my ministry expenses be covered? Many ministers use their personal autos for ministry purposes. Their employers can reimburse these costs using a standard mileage rate published by the IRS. The per mile rate represents employees’ entire reimbursable cost other than highway tolls and parking tabs. If not covered by use of the ministries’ credit card, other costs can be reimbursed as well—business and travel meals, lodging, office supplies, and professional library purchases among them. Some ministries reimburse travel costs using per-diems published by the IRS. If employee business expenses are not reimbursed, the personal tax deduction benefit to the individual minister is severely limited. Non-taxable reimbursements after documentation is provided to the employer follows IRS rules for accountable plans. Non-taxable cash advances before expenses are in...

What is the best retirement account for a Minister?

What are my options for retirement savings? Regardless of options, start now! You probably have learned about traditional and Roth IRAs. We have often found them well short of the benefits we will share here regarding Internal Revenue Code section 403(b) plans. These plans must be established by your employer (although you might need to be the initiator). They are funded in two ways—withholding from your paycheck at your option (called “elective deferrals”) and as initiated by the employer (matching or non-elective contributions). These contributions not only save income tax, but they also reduce the income you must report as subject to the 15.3% SECA tax. Further, at retirement with the cooperation of your church or Christian ministry the distributions to you can be tax-free to the extent of your qualified housing expenses. Many ministries also adopt what are often called “FICA alternative” be...

MinistryCPA - Corey A. Pfaffe, CPA, LLC

Search This Blog