Fund Accounting Basics
Why Fund Accounting
The goal of Jewel Church Accounting Software is to make your work as treasurer as efficient and simple as possible. You do not need any previous knowledge of accounting, since Jewel takes care of much of the accounting for you. However, as you begin your work as treasurer, it will be helpful for you to have a basic understanding of the principles of local church accounting, which is based on the principles of fund accounting. In fund accounting, the focus is on how monies are spent rather than on what profit is earned. It is therefore appropriate for use in non-profit organizations, such as churches and schools. In the local church, there are two main groups under which all accounts are categorized:
Conference Funds include such accounts as Tithe, Conference Evangelism, Religious Liberty, and World Missions. These funds are passed on to the Conference for their distribution. Under no circumstances are Conference Funds to be retained by or used for the local church. These funds are to be remitted to the conference at the end of each month.
Local Church Funds include such accounts as Church Budget, Sabbath School Expense, and various funds for organizations associated with the church like Pathfinders and Adventist Youth. All donations to these accounts are to be handed over to the church treasurer, whether they were received in the offering plate or were an outside donation for a church organization. The treasurer is responsible for the distribution of these funds, under the authority of the church board. It is very important to note that funds are to be used ONLY for their intended purpose as indicated by the donor. If at any time a certain department has need of more money, it can be transferred from another non-discretionary account with surplus (usually this will come out of the Church Budget account) but only after approval by the church board.
The main goal of fund accounting is to demonstrate how donated monies are used and to ensure that they are used for their intended purpose. For example, when a member puts money in their tithe envelope and specifies that it is to be used for the Local Church Budget, the treasurer's bookkeeping should specifically reflect how much was donated, what it was intended for, as well as its being used for the intended purpose of Church Budget. As you enter data into Jewel (cash and checks or electronic donations), it will keep track of how the funds are being used and will produce reports, fulfilling this goal of fund accounting.
How Fund Accounting Affects Your Work
In fund accounting, each dollar gets recorded in two places, both in a bank account, and in a fund. The bank account records where the dollar is being kept, and the fund tells the purpose of the dollar. Using our previous example, a member turns in money for Church Budget. When you enter this in your records, you need to show that money has been added to the Church Budget account (part of Local Church funds). You also need to show that this same amount has been deposited in your bank account. Similarly, when you pay a bill, you remove the money both from the church bank account, and from the appropriate Local Fund. Jewel takes care of these processes for you as you enter offerings and write checks.
Another effect of Fund Accounting is that transferring money between bank accounts does not affect which fund the money is assigned to. For example, transferring money from Savings to Checking does not mean that more money is available for the Building Fund. To get more money for Building Fund, you need to transfer money from another fund like Church Budget to Building Fund.
Example: Hometown Church has $2000 in checking, and $1000 in savings. They have $1500 in Church Budget, $200 in SS Expense, $500 in Pathfinders, and $800 in Building Fund.
When Pathfinders needs $300 to pay for a campout, it doesn’t matter whether the treasurer takes the money from checking or from savings. Pathfinders has $500, so they have enough to be able to spend $300, and which bank account it comes from has no significance. The treasurer will just record the payment from whichever account was used, and record that it came from the Pathfinders local fund, thus subtracting $300 from the bank account and $300 from what Pathfinders has available.
Let's go back to that original $3000 balance, with $2000 in Checking and $1000 in Savings. The church needs $1800 for an emergency repair, so they decide to transfer that $1000 from Savings into Checking, thinking that they can add the $1000 to the $800 they already have in the Building Fund, and thus have enough for the repair. But lets look at what a transfer from Savings to Checking actually does in Jewel:
Notice that there is no change at all in the local funds. The church changed where the $1000 was kept (moved it from Savings to Checking), but they did not change the purpose of the money (which Local Fund it belongs to). If Hometown Church wants $1800 in Building Fund to pay for the repair, they will need to transfer the money from another Local Fund. If there isn't enough money in Checking to pay the payment, they will need to make a second transfer from Savings to Checking:
Some churches do choose to force certain local funds to match up with a certain bank account. That’s ok, but it takes effort to ensure that every transaction in the bank account is matched by a transaction in the local fund(s) that are supposed to match up with that bank account, and not in any other local fund.
Suppose Hometown Church wants to force the $1000 Savings balance to match the Building Fund balance. But right now, they only have $800 set aside for Building Fund. So to get $1000 for Building Fund, they will have to transfer $200 from one of Church Budget, SS Expense, or Pathfinders. We can’t just “invent” another $200 for Building Fund, because then the total of the Local Funds will not equal the $3000 total that’s in the bank.
For more information, see the section on How Jewel Works.