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Glossary

Various financial terms that are useful for congregational financial literacy:

ASSETS

  • Bank Accounts – checking, savings, CDs, petty cash, investment accounts
  • Undeposited Funds – cash and checks in transit to the bank
  • Pledges Receivable – a promise to contribute; only included by a church in rare circumstances or at the end of a year to show December income received in January.
  • Other Accounts Receivable – amounts due to the church for services rendered, such as building use or tuition
  • Other Current Assets – other assets that could be turned into cash within the current year, such as an amount on deposit at the post office or an oil delivery company
  • Fixed Assets – tangible assets that have not yet been entered as expenses on the books of the church; usually only included on church books if there is a loan against them. (pages 35-36)  Since fixed assets are normally not included in church financial reports, it is important to plan for major maintenance and capital improvements through a Capital Plan and Capital Reserve.

LIABILITIES

  • Accounts Payable – expenses incurred but not yet paid
  • Accrued Payroll – gross pay due to an employee for hours worked, but not yet paid, including unpaid vacation
  • Payroll Liabilities – taxes withheld or due on payroll that has already been paid.
  • Loan Payable – the principal amount of a loan due to a lender (does not include interest)
  • Deferred Revenue – payment received for a future service, such as space for a wedding or a tuition deposit; would have to be returned if the event was cancelled

ASSETS minus LIABILITIES equals NET ASSETS

NET ASSETS or FUND BALANCES

  • Unrestricted Net Assets or Funds – may be used for any purpose with the mission of the church
    • Board-Designated Funds – unrestricted funds set aside by a church board for a specific purpose or time
  • Donor Restricted Net Assets or Funds – funds restricted by the donor for a specific purpose or time
    • Temporarily Restricted Funds — funds restricted by the donor that are spendable once a certain condition has been met
    • Temporarily Restricted Endowment Income Funds — accumulated gains and losses from the investment of Permanently Restricted Endowment Funds
    • Permanently Restricted Net Assets or Funds – funds restricted by the donor with the stipulation that they be held in perpetuity by the organization; also known as Endowment

ENDOWMENT consists of permanently restricted funds, along with the temporarily restricted unspent accumulated gains associated with a specific permanently restricted investment

INVESTMENTS are any funds that are held in investment accounts for the purpose of earning investment return to be used by the church; includes endowment.  Note that investments usually include endowment (both permanently and temporarily restricted funds), investments (often board-designated), and operating funds (stock gifts received as payment of an annual pledge).

INCOME

  • Bequest income – contribution to a church given in a will or by the estate of someone who has died.  This is counted as income when it is received, not when it is promised.
  • Contributions – includes only tax-deductible contributions
  • In-kind contributions – non-cash contributions such as supplies or postage for which receipts are submitted, but no reimbursement is requested.  Volunteered services are usually only included if the services require specialized training and would have to be purchased if they were not donated (such as accounting, but not preparing a newsletter.)
  • Donations for use of property – income given in exchange for the use of church space
  • Event income – income received at an event such as a concert or a supper
  • Program fees – fees for participation in programs of the church, such as a retreat, a church trip, or a nursery school

EXPENSE

  • Operating expenses – annual expenses for the ministry and mission of the church
  • Capital expenses – building improvements or purchases of furnishings or equipment that last longer than a year.  Note that churches almost always fully expense these purchases, rather than depreciating them over future years.

FUND TRANSFERS

  • Fund transfer — a transfer from one fund to another, such as from the women’s guild fund to the youth group fund for their mission trip; note that this is neither income nor expense.
  • Capital reserve transfer – a transfer into a capital reserve for future capital expenses

CHANGES IN NET ASSETS – two possible outcomes over time (pages 41-42)

  • Deficit – a decrease in net assets over a period of time, for either one fund or a combination of funds
  • Surplus – an increase in net assets over a period of time, for either one fund or a combination of funds

THREE TYPES OF STEWARDSHIP CAMPAIGNS

  • Annual Giving – seeks funding for annual budget
  • Capital Campaign – seeks funding for capital projects such as buildings and building improvements, as well as what accountants call “furniture and equipment”, such as an organ or computers.
  • Planned Giving – seeks gifts via wills and estates, planned in advance

TWO TYPES OF ACCOUNTING

  • Accrual accounting – a system of accounting that recognizes income when it is earned and expenses when they are incurred.  Required for all external non-profit financial statements.
  • Cash accounting —a system of accounting that recognizes income when cash is received and expenses when they are actually paid