The Statement of Financial Position (Balance Sheet)
The Statement of Financial Position (Balance Sheet)(and those Pesky Designated Accounts)
What is it?
This report is a listing of your “permanent” accounts: assets, liabilities and equity. It is a “snapshot” of the financial health of your church on a given day in time. Let’s discuss in more detail what accounts we are speaking of. Remember churches normally keep their financial books on a Modified Cash Basis.
Asset accounts include all of your “cash” accounts, i.e. bank accounts, savings accounts, investment accounts and petty cash. Please be sure that every account is listed here. I can’t tell you how many times it may be months before a client mentions, “Oh…and we have this trust account…”.
In the modified cash basis of accounting, we do not include fixed assets. However, it is wise to keep a fixed (or some prefer “capital”) account file with receipts for purchase of items that have a useful life greater than one year. This information, the value of your fixed assets, may be requested if your church seeks a loan in the future.
Liability accounts include money that you owe others. You may owe the bank for a loan or the government for payroll taxes. Some churches use a liability account to record donations that the donor has “designated” for a specific purpose. So, while it is NOT money owed to an outside party, it is money set aside as requested. Please look for our post, in the near future, that will discuss designated accounts in detail.
Hopefully your church has more assets than liabilities and the net difference is considered “equity”. Most churches have one equity account: Unrestricted Equity. There may be a reason to also have a Restricted Equity account but we will save that discussion for another day.
An important note: Just because you have money in the bank account does not mean you have money to spend! How can that be? Well, if you have allowed donors to “designate” funds, you must always consider how much money is “set-aside” in these designated accounts for projects or ministries. The total amount of those accounts would not be available for your normal operating funds.