You may need more than 1 budget
Did you know that there is more than one type of budget that your church may need to be concerned with?
Your operating budget is a plan for your everyday operations – the income and expenses that it takes to maintain and “operate” your ministry. All of these types of transactions are recorded in the financial statement commonly known as an Income Statement or Profit & Loss Statement, but in the nonprofit world referred to as the Statement of Financial Activity.
So what about your “designated” donations?
Where should you record those? To have a complete picture of the monies received, my suggestion is to record these as designated income on your Statement of Financial Activity (Profit & Loss) to a designated income account with a secondary code to label the specific designated category, i.e. evangelism, mission trip, etc. These same secondary codes can be used when you make an expenditure for these categories to give you a complete picture of the funds received and the funds spent for these special designations. At the end of the year, if there is any “balance” in these funds, you can journal these amounts to the Statement of Financial Position (i.e. Balance Sheet).
What are reserves?
Reserves are a pre-determined amount of money that you want to set-aside each month to “save” for a big item, e.g. a new church van, a building fund or such. These funds are recognized on the Statement of Activity as an expense and an asset on the Statement of Financial Position. This allows you to budget for the monies you need to save or reserve each month in your operating budget while building the balance of the reserve on your Statement of Financial Position (Balance Sheet). The big caution here is this: your available funds in your checking account are always less the amounts you have reserved. For example if it is year-end and you have a $10,000 balance in your checking account, you must keep in mind that $5000 of that has been “reserved” on the balance sheet for some special purpose.
But what about a Capital Budget?
Some organizations determine that there is a certain amount of monies each year they require for new equipment, a new building, a new vehicle or such. This can be budgeted outside of the normal operating budget. Why? Because these assets will be recorded on the Statement of Financial Position (Balance Sheet) and may be funded from a special fundraiser, an investment account or from the operating budget to a designated account. For example, I have one client who plans to “expense” $400 every month of the year for building maintenance. So every year they budget $4,800 for building maintenance. These funds are shown as an expense on the Statement of Financial Activity and “build-up” the balance sheet restricted asset account called “Building Maintenance”. Then, when they actually experience a need to do some building maintenance, the cost decreases the restricted asset account (instead of the expense account on the Statement of Financial Activity). This helps in planning and consistency in budgeting,