The Essential Church Bookkeeping Guide: How to Get Started.

Wednesday, December 18, 2024

Church leaders generally strive to build thriving churches that bring congregants together to worship and minister effectively to the community. But growing a healthy church also involves growing a financially stable church. After all, you need well-managed finances simply to keep your church’s lights on, not to mention fueling all of the initiatives that further your mission!

To fully understand your church’s financial situation and manage its resources properly, it’s critical to develop solid bookkeeping processes. In this guide, you’ll learn all you need to know to get started with church bookkeeping, including:

• What is Church Bookkeeping?
• Benefits of Bookkeeping for Churches
• Pro Tips for Effective Church Bookkeeping

Let’s begin by aligning on what church bookkeeping is and who is responsible for it.

Jitasa’s affordable, tailored bookkeeping services cater to churches of all sizes and denominations.

Request a Quote

What is Church Bookkeeping?

Church bookkeeping is the systematic process of organizing and tracking a church’s finances. It involves keeping records of your church’s revenue, expenses, transactions, assets, liabilities, and other essential financial information that informs its operations.

Most churches with robust bookkeeping systems entrust these duties to a designated professional. Once you hire a bookkeeper, they’ll manage a variety of everyday financial responsibilities, including:

• Entering basic financial data into your church’s accounting system.
• Writing checks for everyday payments like vendor fees and utility bills (and getting leadership approval for larger checks as needed).
• Making bank deposits of physical cash and checks, and/or overseeing electronic deposits.
• Managing invoices from consultants and contractors.
• Processing payroll for your church’s staff (although this task could also fall to a human resources professional, depending on your church’s management structure).
• Allocating costs on a day-to-day basis according to your church’s budget.

While your church’s bookkeeping needs may vary depending on its unique situation, these responsibilities should form the basis of your bookkeeper’s job description.

The Difference Between Church Bookkeeping & Accounting

To create a top-notch financial management system for your church, you need an accountant on your team as well as a bookkeeper. However, bookkeeping and accounting are frequently confused—here is how to distinguish between these functions:

• As mentioned previously, bookkeeping covers churches’ everyday financial needs and focuses on recordkeeping. Bookkeepers aren’t required to obtain specific degrees or certifications to perform their roles—they just need some general financial knowledge and on-the-job training to work effectively.
• Nearly all accounting jobs, on the other hand, require a CPA certification and at least a bachelor’s degree in accounting or a related field. This is because accountants perform more complex tasks related to financial analysis and reporting, such as:
  • Reconciling various types of transactions
  • Reviewing budgets
  • Preparing for audits
  • Compiling financial statements

Bookkeeping and accounting are related in that bookkeeping lays the foundation for the accounting processes that follow. Your church’s bookkeeper and accountant will likely work closely together to ensure accuracy in your records and reports.

Benefits of Church Bookkeeping

If your church prioritizes effective bookkeeping, you can experience several key benefits, including being able to:

• Ensure regulatory compliance. Although most churches don’t have to file Form 990 each year, they still need to comply with other IRS rules to maintain their tax-exempt status. Plus, all organizations (for-profit and nonprofit) are expected to follow the Generally Accepted Accounting Principles (GAAP) to standardize their financial practices. Thorough recordkeeping helps your church stay aligned with both sets of regulations.
• Reduce operational risks. In addition to non-compliance, there are other real financial risks that could derail your church’s operations, like fraud and theft. Properly managing financial information allows you to identify these risks early and take action to prevent them from causing significant problems.
• Make data-driven decisions. Effective bookkeeping doesn’t just lower the chances of negative consequences for your church—it also boosts positive outcomes. Clear financial records can inform many decision-making processes at your church, from showing you what types of fundraisers are most profitable to determining if you’re financially ready to complete a major project.
• Increase transparency. As Ministry Brands’ 2024 State of Church Giving Report explains, financial transparency factors into congregants’ decisions to give to churches—in fact, more than half of churches that increased their giving totals in 2023 cited it as a contributing factor. But to fully experience the benefits of transparency (increased giving and stronger congregant relationships), you need accurate financial data to share!

Bookkeeping doesn’t just lay the foundation for accounting—it’s also the basis of strategic planning, fundraising, communications, and many other vital activities at your church. Make sure your whole team is on the same page about the importance of bookkeeping, and keep the lines of communication open between your financial professionals and your other employees so everyone can understand your church’s financial situation as it applies to their work.

Pro Tips for Effective Church Bookkeeping

Now that you know what church bookkeeping entails and why it’s important, let’s walk through some additional tips to set your organization up for success.

Recognize Revenue Properly

Revenue recognition refers to the procedures your church uses to record the funds it brings in correctly. Different types of revenue should be recognized at different times and organized into different categories in your records according to GAAP and other Financial Accounting Standards Board (FASB) regulations, so your bookkeeper should be familiar with those guidelines.

Here are a few key terms you should know to frame your church’s revenue recognition processes:

• Contribution transactions occur when your church receives funding without directly giving the contributor anything in return. Most individual donations (regardless of size or giving method) and grants are considered contribution transactions. Record this revenue as soon as you know the full amount you’ll receive, even if the funding takes more time to arrive or comes in installments.
• Exchange transactions happen with the expectation that a supporter will receive something in return from your church. This category includes revenue from activities like merchandise sales, fundraising events, or ministry-related fees (e.g., costs for church members to attend retreats or participate in mission trips). Record exchange transactions when the contributor receives what they were promised.
• Restricted funds should have their own section in your bookkeeping system, although you’ll follow the same transaction-specific procedures for when to record them. These funds (usually major gifts or grants) have contributor-imposed designations attached to them, so your church has to put them toward certain initiatives. Recording restricted funding separately makes it more likely that your church will fulfill its obligations rather than accidentally spending this money on costs it wasn’t intended to cover.

Revenue recognition also affects financial reporting because, as a general rule, your church’s records and reports should line up. Set up your system properly to make things easier for both your bookkeeper and your accountant.

Keep Records of Non-Cash Contributions

Today’s donors appreciate flexibility in giving methods, and accepting in-kind donations is a great way for your church to provide this. In-kind donations also allow your church to secure useful goods (like used books for your lending library or snacks for your children’s ministry) and services (such as web development or legal counsel) at no cost, so you can reallocate the funds you would’ve spent on them to other areas of your budget.

Besides goods and services, other forms of non-cash giving are becoming increasingly popular for churches, such as gifts of stock, real estate, and cryptocurrency. Your bookkeeper should create separate categories in your records for all of these contribution types to track them accurately.

To track traditional in-kind donations, figure out the gift’s fair market value (FMV), which is the price you would’ve paid for the good or service on the open market. Then, record the FMV as a debit and credit to reflect that these gifts result in a net zero gain in cash for your organization. For other non-cash contributions, record their value when you receive them and when you sell them (if applicable). Your bookkeeper should be familiar with all of these processes, but your accountant can come in behind them to review and balance transactions as needed.

Categorize Expenses Consistently

Your church’s financial records and reports should also align when it comes to tracking expenses. There are two main ways your bookkeeper can categorize cost data:

• Natural expense categorization organizes costs based on the type of payment made. If your church uses this method, your categories might include items like staff compensation, facilities, and outreach, among others.
• Functional expense categorization sorts costs according to how they further your church’s mission. The primary categories here are program expenses (directly mission-related), administrative expenses (necessary for operations), and fundraising expenses (upfront costs of generating revenue).

Many nonprofits use functional expense categorization to align with the requirements of Form 990, so if your church is required to file that tax form, you should use the corresponding method. If your church is exempt from Form 990 like most, you can choose either method, as long as your records, operating budgets, and financial statements all categorize expenses the same way.

Invest in Dedicated Software

When your church first started tracking its finances, you probably used a spreadsheet to keep data organized. While spreadsheets work in the short term, it’s best to switch to a specialized accounting platform when you can. Accounting software makes it easier to record various types of transactions, monitor your church’s financial obligations, create and store reports, and facilitate various other bookkeeping and accounting activities.

While there are a number of good church accounting platforms available, we at Jitasa recommend Intuit’s suite of products. Your church can choose from a few different solutions and plans depending on your needs:

• QuickBooks Online Plus: Provides small to mid-sized churches with core bookkeeping and accounting features in a cloud-based platform.
• QuickBooks Online Advanced: Similar to the Plus plan, but includes several more specialized features and access for additional users.
• Intuit Enterprise Suite (IES): More robust financial management tools and analysis capabilities that large churches can benefit from.

While QuickBooks Online and IES aren’t designed specifically for churches or nonprofits, it’s relatively easy to customize lots of factors during the setup process—from expense categories to chart of accounts designations—to meet your church’s needs for the long haul.

Track your church’s finances with our customizable Church Chart of Accounts Template.

Download for Free

Designate a Church Bookkeeper

As mentioned previously, the most important thing your church can do to set itself up for bookkeeping success is to have a dedicated bookkeeper on its team. There are three ways your church can fulfill this need, each of which has advantages and drawbacks:

1. Hiring in-house. Bringing on a new employee can be a good option for large churches with many bookkeeping needs. However, recruiting, onboarding, and compensating an in-house bookkeeper is expensive, so you have to evaluate whether these costs are worth it for your church.
2. Asking a volunteer or in-kind donor. This option works well for smaller or newer churches since it’s free. It isn’t particularly sustainable, though, since volunteer bookkeepers often lose motivation over time and eventually start prioritizing paid work over helping your church.
3. Leveraging outsourced bookkeeping services. Outsourcing allows your church to work with expert bookkeepers at a fraction of the cost of hiring in-house. These professionals are typically highly motivated and dedicated to your church, and their experience helping other organizations informs their approach. The only drawback here is that turnaround times can be longer because outsourced bookkeepers typically have multiple clients, but you can work around this through proactive communication.

If you choose the last option, we (of course!) recommend considering Jitasa, the largest provider of outsourced church bookkeeping and accounting services in the United States. We’ve partnered with more than 100 churches of all sizes and denominations, so if your church has a financial need, we’ve probably seen something similar before and can help you manage it. Plus, we work exclusively with tax-exempt organizations, so we know the ins and outs of bookkeeping for churches and will maintain compliance every step of the way.

Effective church bookkeeping involves managing many moving parts, but with the right strategy and tools on your side, you’ll set your church up for enhanced decision-making, transparency, and financial compliance. Use the tips above to get started, and don’t hesitate to reach out for expert help whenever you need it.

For more information on church finance, check out these resources:

• Church Accounting: Ultimate Guide + Best Practices to Know. Dive deeper into the other side of church financial management—accounting—to get a clearer picture of how it works together with bookkeeping.
• How to Set up QuickBooks for Nonprofits: The Complete Guide. Learn how to configure and leverage QuickBooks Online to serve your church’s needs effectively.
• Bookkeeping & Accounting Services for Churches | Jitasa Group. Explore Jitasa’s affordable, scalable bookkeeping and accounting services, tailor-made for churches like yours.

Navigate church finances effectively with Jitasa’s expert bookkeeping and accounting services.

Request a Quote