MinistryCPA - Corey A. Pfaffe, CPA, LLC

Question:  Why wouldn't a contribution designated to a missionary be recorded as a Liability instead of an Equity Fund account as you suggest? Then when the money is sent to that missionary the entry would simply reduce the Liability account. Answer: Generally Accepted Accounting Principles (GAAP) states that donor designated gifts, including missions funds, are considered donor restricted funds. As restricted funds it is best practice to record designated gifts as equity accounts, which falls under GAAP standards. This is true regardless of whether the restriction is temporary or permanent. Temporarily restricted gifts are gifts given by the donor for a specific purpose or program or for use at a certain time. In a church, common temporarily restricted funds might include a missions fund, benevolence fund, building fund, and others. Permanently restricted contributions are gifts given by the donor to be permanently maintained, but the church may use any income that comes from the ...

Question:  What is the best approach to recording the receipt and disbursement of designated gifts in QuickBooks? Answer: There are three ways we recommend tracking receipts and disbursements for designated gifts. Each of these alternatives will come to the same conclusion at year end on the Statement of Financial Position (aka, the "Balance Sheet"), showing the same beginning- and end-of-year balances.      1) The first approach is to post the receipts and disbursements of each designated fund throughout the year to a single equity account. The benefit of this is that you will always have a real-time balance of remaining funds. The total receipts and total disbursements can also be viewed on QuickBooks by creating a "Transactions by Account" report and view the total credits (receipts) and debits (disbursements) of the desired designated fund. An additional benefit is that no year-end closing entries need to be made, as everything is posted directly to the equity a...

Question: A church supports a missionary with a generous monthly disbursement to his mission agency. This regular monthly amount is disbursed from its general fund as a budgeted expenditure. A donor has made a contribution earmarking the same missionary with a designated gift. The church has not solicited or maintained a designated fund for this missionary. What alternatives might the church consider to handle the contribution? Answer: A church may apply one of two alternative policies to handle unsolicited designated contributions.  1.) While every missionary family could certainly put additional funds to good use, the first alternative implies the assumption that the current monthly amount from the church provides a very minimal or insufficient amount to support his or her work. Hence, additional support enabled by designated gifts will be most welcome, encouraged, and solicited. Because the designated gifts are above and beyond the budgeted amount, a separate designated fund mus...

Question:  Church members were planning to participate in a church-sponsored mission trip, and the participants have raised funds from various donors. Unfortunately, due to COVID-19 the trip was cancelled, and the church disbursed to the  participants  the funds that had been raised .  Should a Form 1099 be filed for any amount refunded in excess of $600? Answer: While the COVID-19 pandemic may be a rare occurrence, it is not uncommon for individual members to find it necessary to cancel their participation. When members cancel their participation for any reason, including the scenario described above, there are two ways we recommend the church handle the funds raised for the mission trip. The first is that the funds be returned to the original donors. Because the donors had provided their gifts for specific individuals to attend the trip, which is no longer taking place, the funds could be refunded to the donors. The second option is to place the monies in a designa...

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 w...

Question: The following question rolls out of content provided in a previous post: " Debits and Credits for Designated Gifts ." How do I generate a report in QuickBooks that shows the monthly starting balance, change for the month, and the ending balance for each Equity account relating to Designated Gifts? Answer: Our answer here will be consistent with the above cited blog post. In it we discussed simplest approach to handling Designated Funds that we can suggest.  We will illustrate assuming the use of QuickBooks Desktop. Some of these instructions may be slightly modified for users of QuickBooks Online. The following are the necessary steps: 1. Select the "Reports" pull-down menu 2. Under "Accountant & Taxes" choose "Trial Balance" 3. Modify the date range to reflect the desired period 4. Double-click on the amount for the Equity account of interest This will generate a "Transactions by Account" report.

Question: A church recently held an ordination service for one of its members who is planning to go on a foreign missions trip. During the service, a $1,000 special offering was taken. Is this offering taxable to the missionary? Is it deductible by the donors? After the offering has been given to the missionary, a friend gives another gift to the church. This gift is designated for the missionary, but "to be used as the church sees fit if the trip is fully funded." Can the church simply give this money to the missionary? And is this also deductible by the donor? Answer: In answering the first part, yes, the offering is taxable as compensation. Essentially, the church is "hiring" the missionary to help accomplish its own Great Commission mission. Because the missionary is "self-employed" for income tax purposes, the church should issue Form 1099-MISC, and the missionary should closely track and report business expenses to facilitate deductibility of thos...