While not technically errors, there are other common weaknesses in church financial statements I have noticed. In this case, breaking out the net assets into the portion represented by property and equipment and the amount represented by other items would have made this situation clearer. Since the church’s assets included $460,000 of restricted funds, the church was actually in a slight deficit position in terms of it’s ability to meet current obligations a much different picture. Upon closer examination however, I noted that the church’s net investment in property and buildings (cost less depreciation) was approximately $9.4 million. At first glance it appeared that the church had plenty of assets and certainly did not need my money. The balance sheet of one large church showed that the church had total assets of $9.8 million and net assets (assets minus liabilities) of $9 million.

Note, either the term expenses or expenditures may be used, however I prefer the term expenditures since monies sent to missionaries and certain other cash outflows are not really an expense of running the church, but part of the church’s ministry outreach.Īnother weakness in some financial reports is that while the numbers may be correct and presented in accordance with generally accepted accounting principles (GAAP), there may be an important issue or trend that is not readily apparent, especially to those not familiar with accounting concepts. In the case of a deficit, a preferable term is “income over (under) expenditures” with the deficit shown in brackets. When showing the difference between income and expenses for a church, the correct term is excess of income over expenditures and not a total. Shortly thereafter I saw another church report that referred to the difference between income and expenses as the net total another technical and confusing error. I have subsequently seen the same reporting error in a number of other church financial statements. This seemed to imply that the church measures its success in terms of how much money came in, not by the spiritual growth of its members or its outreach in the community.įrom a technical standpoint, the terms “profit and loss” are not normally used in church accounting except for certain activities such as a church bookstore where profit or loss might be appropriate. In the church’s bulletin it showed the income and expenditures for the year and indicated the difference, a negative number, as the “loss” for the year.

In addition, it is not uncommon for such statements to contain technical errors which, while not readily apparent to most readers, can detract from the reader’s ability to fully understand what the report is intended to communicate.Īs an example, I recently visited a large denominational church in a well known city.

Unfortunately, many of these reports are simply based on business financial reporting models and therefore may not convey the church’s finances as clearly as they could. As a result, more and more churches are providing annual financial reports to their congregations. In recent years the issue of corporate financial accountability has become increasingly important, even for churches.

Church financial statements