In the Kicking It Up A Notch series, up to now, we’ve been talking about Expenses.
Today, in Notch 4, let’s talk Income.
Get the last Sunday of the month’s offering into the correct period. I spoke to period-end cutoffs in Notch 1. In cash accounting, you may have placed offerings on the books based upon the deposit date. Now, the period they go in is based upon the received date.
In case you haven’t noticed, each of these bookkeeping “notches” have included a component of upfront planning. Trust me, it pays to think it thru upfront before you just start diving in. With that in mind, beyond getting the income in the correct period, consider the following:
General/Budget Offerings vs. Designated:
Just as important as keeping designated funds separate from un-designated funds in your cash accounts, it is just as important to keep the income accounts separate. Set up designated income accounts for each designated purpose accordingly.
Think through how you want to record all types of income. I separate these two into two areas.
The first being primary funding of the ministry (critical funding of the mission and ministries of the church), and secondary receipts (not needed to fund the ministry).
By far, most money received will be primary or core receipts. You absolutely have to have this money to fund the ministries of the church. For example, general offerings, building fund receipts, mission fund offerings and the like are core ministry activities. They are recorded in an income account.
However let’s get down to the ministry level where it may not be as clear.
To the extent the ministry is receiving funds to operate or to host an event, those are primary ministry activity receipts and recorded as income. For example, if you have fundraisers or you solicit funds to support a particular ministry in your church they should be recorded as income. Receipts from a ticketed event should be recorded as income as well.
To the extent the ministry in the church receives money for incidentals such as books or supplies, obviously those receipts are not funding ministry purpose. In my opinion, one could make the case to record these as a credit to expense. They’re just incidentals or cost offsets. (Be aware however, that accounting guidance leans towards recording these as income).
The point I am trying to make is go ahead and figure out up front what kind of receipts will be recorded as a credit to expense, if any. Should you decide to record some receipts as a credit to expense, I have a couple things for you to consider:
Impact on Reporting.
In your Budget to Actual, obviously one column must represent the original budget as approved by the church. There should also be another column that represents designated receipts. That requires a separate account within the expenses to capture these numbers. These are better shown as designated receipts in the second column. [See this post as an example]
When it comes time to set next year’s budget you will want to know what the gross cost of the incidentals were along with how much of these costs you recovered. Or maybe you want to fully fund all the incidentals in the next year’s budget. Either way, it would be much easier to have captured these incidental receipts into a separate account so that you’re not having to go through the transactions to capture them.
Reconciling Receipts back to the Contributions Module.
Hopefully at month-end, you’re taking the time to reconcile the total receipts from the contribution module to the sum total of all the receipts recorded in the general ledger. This is just a basic reconciling activity you need to be doing to make sure everything is being recorded as it should be. Obviously, it would be much easier for this reconciliation to take place if you capture these incidental receipts in their own account.
As the bookkeeper for your church, I commend you for kicking it up a notch. You’re well on your way in making the books stronger and the reports more meaningful – thus making for better decision support. You’re becoming more valuable to the team as well.