Free Church Chart of Accounts Guide, Template, Sample & Tools

 Illustration of a church admin working on the church chart of accounts

Church accounting is a specialized process based on fund accounting. To do it correctly, you must create a church charge of accounts that lists its financial transactions. Accounts are typically categorized as assets, liabilities, equity, income and expenses.  

However, creating a church chart of accounts can become complex, considering the many sources of income and assets. Fortunately, some templates, tools and church management solutions can simplify the process. 

 

Table of Contents  

  

 

Free Church Chart of Accounts Template, Sample and Additional Resources  

  • Free Template  -  Download this template to guide you through your Chart of Accounts (COA) setup.  
  • You should also check out this IRS website page for links to IRS guidelines for religious organizations.  

  

 

What is a Church Chart of Accounts? 

Calculator, Pen on Top of a Church Chart of Account

A church chart of accounts is a list of its financial transactions. Transactions are typically organized into five categories as follows: 

  • Assets 
  • Liabilities 
  • Equity 
  • Income 
  • Expenses 

These are often further broken down into subcategories for organizational purposes.  

The church chart of accounts sets the foundation for nonprofit financial management. It’s also a living document that must be updated as new transactions occur and old transactions are outdated. It should be simple, straightforward and easy to edit.  

Churches without an organized chart of accounts may be in trouble. Researchers estimate that as many as 7,700 churches close each year, often due to financial mismanagement. A chart of accounts ensures churches can easily see their financials, creating a more effective system that goes beyond simply keeping a general ledger.  

Key Differences from a Church COA and Other Nonprofit and Business COAs 

A church COA differs from other COAs in the following manners: 

  • Fund Accounting: A church uses a fund accounting system that tracks how funds are used and prioritizes accountability over transparency. It involves grouping assets and liabilities by purpose to restrict how donations are used.  
  • Revenue: Churches must track sources of revenue, which typically include tithes and offerings rather than sales. They must also record how much money is received and what it’s used for.  
  • Owner's Equity: Unlike business accounts, church accounting does not recognize owner's equity because churches aren't owned entities.  
  • Terminology: Churches use different terminology from business terminology. For example, they categorize retained earnings as net assets.  
  • COA Structure: A church will use five categories to organize its financial transactions, including assets, liabilities, equity, income and expenses.  

 

 

Why is a Chart of Accounts Important? 

A chart of accounts is essential because it enhances transparency and accountability, simplifies financial reporting and facilitates decision-making. Transparency is especially essential, as 57 percent of churches saw an increase in congregational giving in 2023 by being transparent about their spending. The following section will further explore its benefits.  

Enhances Financial Transparency and Accountability 

A chart of accounts enhances financial transparency and accountability in the following ways: 

  • Detailed Tracking: A COA assigns every transaction to a specific account so administrators can monitor where money is coming from and going to.  
  • Donor Restrictions: The chart can identify and track funds designated for specific purposes, ensuring they are appropriately allocated. It allows donors to see what their money is used for.  
  • Internal Controls: A chart of accounts can provide financial information when multiple church leaders are required to approve expenditures, ensuring accountability in decision-making.  

Simplifies Reporting for Compliance 

A COA simplifies reporting for optimal compliance with the following features: 

  • Categorization: The COA ensures each transaction is assigned to a specific account so you can quickly determine where the church is spending the most money.  
  • Aids with Fund Accounting: The chart of accounts separates funds for accounting purposes.  
  • Reporting Flexibility: A well-structured chart of accounts allows churches to create reports based on specific funding needs.  
  • Auditing Efficiency: A COA ensures funds are classified, simplifying the auditing process.  

Facilitates Better Financial Decision Making 

A chart of accounts gives administrators a clear overview of the church's financial health. They can use this information to make spending decisions that dictate what to invest in and how much to invest while following recommended church budgeting tips. 

 

 

Key Components of a Church Chart of Accounts 

A church chart of accounts is typically classified into the following key components: 

Revenue Categories 

Revenue is the money the church earns. It’s typically broken down into the following categories.  

  • Tithes and offerings: Tithes and offerings are the money donated by churchgoers. Tithes are typically collected during services, while offerings are more flexible. However, both types of donations can be made at any time. Tithes and offerings typically account for about 75 percent of church income, making this subcategory especially important.  
  • Donations and grants: Donations and grants include the money donated by church members and income from other sources like organizations and community members. When a church receives a donation, donation tracking is an important part of the process centered on knowing where money came from and where it’s used. Grants are provided by organizations and awarded to churches that qualify. Examples include capacity-building grants, technology grants and program-specific grants.  
  • Special Fundraising Income: Churches may also generate income from specific fundraising efforts. Like grants, collected funds can support program expenses, a building fund or technology.  

Expense Categories 

Expenses are the money the church spends. It may be categorized as follows: 

  • Ministry Expenses: Ministry expenses refer to the money the church spends to sponsor religious activities like worship expenses and youth programs.  
  • Operational Expenses: This is the money the church spends to maintain operations. Examples include utilities and salaries. According to Church Law and Tax, churches spend about 40 percent of their budget on salaries, making this an important subcategory to track.  
  • Special Projects: Projects may include building efforts, community events and fundraising activities. 

Asset Accounts 

Assets are resources the church owns or controls. They can be used to generate income. Assets can be categorized as fixed or current in the following manner.  

  • Fixed Assets: Fixed assets are used to grow a business in the long term. They can depreciate over time. Examples include buildings and equipment.  
  • Current Assets: Current assets help with short-term funding needs. Examples include cash, cash equivalents and account receivables.  

Liability Accounts 

Liabilities refer to the church's financial obligations and debts. They include: 

  • Loans: Loans are typically borrowed from financial institutions and paid off over time. They may include the church mortgage or any money borrowed to fund building, remodeling and other projects.  
  • Accounts Payable: Accounts payable are the money the church owes in the short term. For example, if the church buys equipment and is invoiced by the company, the amount owed will be an account payable until it is paid.  

 

 

How to Create a Church Chart of Accounts 

Here is a step-by-step guide on how to create a church chart of accounts.  

Identify Your Church's Financial Needs 

Identifying your church's financial needs will help you determine a structure that supports growth. It will ensure you set up accounts that lead to optimal financial organization and helps you keep key tax considerations in mind.   

Categorize Income and Expenses 

Next, you must set up categories and subcategories for your income and expenses and categorize them accordingly.  

Use Standard Account Numbering for Consistency 

Assigning account numbers helps with identification and simplifies data entry.  

Include Sub Accounts for Detailed Tracking 

Subaccounts will further classify your financial transactions. For example, tithes and offerings will be subaccounts of revenues. Ministry and operational expenses are subaccounts of your expenses.  

Examples of Numbering Structures 

Typical account numbers are as follows: 

  • 1000-1999 for Assets 
  • 2000-2999 for Liabilities 
  • 3000-3999 for Equity/Net Assets 
  • 4000-4999 for Revenue 
  • 5000-5999 for Expenses 

Numbers are further assigned based on subcategories. For example, an interest expense maybe 5000 — a rent expense may be 5010 and so on.  

Check out this video for more information on how to set up a chart of accounts: 

 

 

 

Best Practices for Managing a Church Chart of Accounts 

Optimize your church chart of accounts with the following best practices.  

Regularly Review and Update Accounts 

Review your chart of accounts regularly to ensure it aligns with your specific needs. You can also change the structure or add or change things later if needed.  

Ensure Alignment with Ministry Goals 

To ensure your chart of account aligns with ministry goals, you must review your ministry's plan and priorities. Then, create specific accounts that reflect the key initiatives and programs.  

Train Staff and Volunteers on Proper Usage 

With accounting, one improperly inputted piece of information can throw off the entire system. Ensure all staff members and volunteers involved in finances are trained to use systems properly to avoid miscalculations.  

Leverage Accounting Software Designed for Churches 

Software systems use automated processes to simplify accounting and make it more intuitive. Popular choices include:  

  • ChurchTrac: ChurchTrac is an affordable, easy-to-use solution with various church management features.  
  • Realm: Realm offers various ministry tools and comprehensive support from a team of experts.  
  • Aplos: Aplos supports accurate fund accounting and provides integrated payroll for a complete church bookkeeping experience.  
  • QuickBooks: QuickBooks is one of the most popular accounting software providers. Previously, it was not an ideal option for church accounting, but it now offers fund accounting features.  
  • Church Pro: Church Pro is an affordable all-in-one solution offering ready-made reports.  

This video provides a more in-depth rundown of popular church software programs.  

 

 

 

Common Mistakes to Avoid  

Church accountants should also avoid common mistakes to ensure a smooth system. These include: 

Overcomplicating the Account Structure 

The fund accounting system can make church accounting more complex, but accountants should simplify it as much as possible. Maintain a streamlined structure to avoid confusion in bookkeeping. A complicated system increases the risk of errors, especially if multiple people are involved in accounting, including a church finance committee.  

Ignoring Regulatory Requirements 

Churches must adhere to various regulatory compliances. For example, Internal Revenue Service (IRS) regulations state they must:  

  • File 1099s for non-employees with annual payments of $600 or more.  
  • File W-2s for salaried employees  
  • Adhere to GAAP principles for various documents and reports.  
  • File a Form 990 – although not mandatory, Form 990 can promote financial transparency 

In addition to the IRS guidelines for churches, a church can also maintain compliance by: 

  • Keeping accurate financial records 
  • Implementing internal controls like segregation of duties and checks and balances to protect funds from fraud and misuse. In addition to maintaining compliance, it protects churches that are often victims of fraud. According to an Overseas Ministry study, 6.6 percent of funds given by Christians globally were lost to fraud and embezzlement.  
  • Maintain audit-ready financial statements that can be easily provided to banks and other regulatory organizations 

Failing to Separate Restricted and Unrestricted Funds 

Restricted funds are designated to a specific cause. Unrestricted funds are more flexible and could go to anything from an outreach fund to a youth fund or benevolence fund.  

Accounting systems should separate restricted and unrestricted funds for full accountability. Failure to do so leads to a lack of clarity among donors who donated funds for a specific cause.  

This video provides more clarity on restricted funds:  

 

 

 

Church Chart of Accounts FAQs 

What is the purpose of a chart of accounts in a church? 

A chart of accounts helps organize transactions, can simplify church finances and promotes transparency and accountability.  

How do I set up a chart of accounts for a small church? 

Setting up a chart of accounts is a multi-step process that involves identifying church needs, categorizing income and expenses, setting up subcategories and developing an account numbering system.  

What's the difference between restricted and unrestricted funds? 

Restricted funds are used for designated purposes. Unrestricted funds can be used more flexibly and are ones given to something like a general fund.  

Do I need accounting software for a church COA? 

No, but church-specific church management software such as ACS Technologies, Planning Center, PowerchurchChurch Windows, and Concordia are used widely to simplify the process of church administration, including church accounting and bookkeeping tasks. If you're unfamiliar with these technologies, they are similar to popular accounting software like QuickBooks but have many other features that make tracking attendance and membership, donation management and communications much more manageable as part of your church finances.  

  

 

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