The vast increase in non-profits targeting the different sections of the society has adversely affected the churches in the churches. It becomes easier to catch the fancy of the members when they always receive the details of their contributions. The contribution records help the members in preparing the financial statements at the end of the year.
An ideal church management system permits the staff to manage the ledgers and funds associated with the accounts.
Here are the basic terms one should understand for fund systematically organizing the funds –
1. Contribution fund
This is a fund created in the contribution division of the church software. It tracks the giving of the members and illumens them when, where and how their contributions are processed.
As the accounting year ends the fund lists the contributions made in the year year in different areas.
2. Accounting Fund
This fund deals with the monetary transaction; it is the pathway for the inflow and outflow of financial resources. The cash is recorded in the way it is utilized as – unrestricted, restricted for a short term or long term.
This is done according to well-defined accounting rules. The year 1993 introduced some of the key phrases dealing with assets and liabilities which are frequently used in the church management software. Here is a brief prologue-
Net assets – In the balance sheet also called financial statement this comes in the equity column.
These assets are further categorized into: –
i. Unrestricted Net Assets – These are net assets on which there is no restriction from the donors or law. They can be used for any purpose as the donors have not specified how his / her endowment should be used. Example General Funds
ii. Temporarily Restricted Net Assets – These either get obsolese after a limited time or the use is restricted to a particular target. Example of timer restricted net asset is a check from the donor. It is an asset only till the date it can withdraw from the bank.
The target limited assets are employed only to fulfill a certain purpose.
iii. Permanently Restricted Net Assets
These assets are specifically maintained by the churches for a long-term. The donor's contribution is restricted for exploiting and its financial advantage does not reduce with time.
The above taxonomy is based on the parameters are set by the churches but the donors. The three net assets are mentioned in the equity column which signifies if you write them in the liability column the balance sheet is not following the general accounting principles.
In the ledger numerous accounts are maintained to record the church activities related to funding. Universally these four come into play – asset, liabilities, revenue and expense.
Ideal charity management software gives the admin the opportunity to create a general ledger.
The right accounting approach helps the church to generate accurate reports which are helpful for the donors as well as members. The leaders can analyze the rationale for pitfalls in fundraising and all aspects of the church.