Every year, 1.5 million people tithe to their churches in the United States, representing billions of dollars, and church financial reports are a critical part of this process. Churches are nonprofit organizations, so establishing a church budget and providing reports on their financial management to facilitate financial transparency with their members is an important function of their operations.
A holistic church financial report to congregation members can help churches maintain this financial transparency. This is why it’s so important to draft regular monthly or quarterly reports and an annual report at the end of every financial year.
Read on for a complete guide to everything you need to know about creating church financial reports.
Table of Contents
- Why Churches Need to Provide Financial Reports
- Free Church Financial Report Template
- Church Financial Reporting Requirements
- What Should Be in a Church Financial Report?
- What Should Be in a Church Annual Report?
- How Do You Write an Annual Report for a Church?
- Free Tools & Templates to Help with Church Finances
The Need to Provide Church Financial Statements
A church is a nonprofit organization and must keep accurate financial statements every year to maintain this status. These financial statements may not be needed for tax filings, but they are still incredibly important to describe the church’s finances. This is essential if the church ever wants to apply for a loan or prove financial viability.
In addition to potential tax and financial requirements, creating and maintaining accurate financial records helps churches maintain financial transparency.
Financial transparency is vital for churches, nonprofits and the government due to the source of their income. The bulk of a church’s income comes directly from the congregation, so it’s essential to create accurate church financial reports to show the congregation exactly where their money is going. Financial transparency can help build a better relationship between church leadership, the congregation and the community at large. This can also include the church finance committee, which helps manage its finances.
Financial statements are also important to keep in case a church is ever audited by the IRS. Because churches have nonprofit tax status, an audit might be used to determine if they are actually running as nonprofits. Having all your church’s financial documents in order ensures you comply with all relevant legal regulations.
Making Financial Decisions
Financial statements let you know exactly how much money your church makes, how much money the church has, and where the money is. This is vital information that can help guide your operational decisions. Maintaining accurate financial statements can provide leaders with all the information they need to evaluate opportunities and plan outreach projects in the future.
At the end of the day, financial statements show you how much you can afford to spend. This comes in handy when planning what you’re going to spend in the next year. An annual report blends these elements together into one seamless document.
This one document will summarize what happened last year, how much money your church spent last year, what the church plans to do this year, and the budget for this year.
Monthly Church Financial Report to Congregation Members
The best way to maintain financial transparency is to publish a monthly church financial report to the congregation. These reports don’t have to be as detailed or lengthy as the annual report. However, the monthly report should include vital financial information to help your congregation stay informed.
Churches generate income from a number of different sources, with tithes often being the largest source. You can publish a monthly financial report for the congregation to let them know how much you collected in tithes for the previous month. This statement also can indicate how much money the church spent in the last month.
This simple church financial report lets everyone know how much money came into the church and how much was spent. If more money was spent, this tells the congregation that they need to help raise more funds for the church to cover its bills. In this way, the monthly church financial report to the congregation can encourage people to give more to their local churches.
Monthly reports work because transparency helps build community buy-in. The congregation and community feel like they are part of the church and share in the goals and aspirations of the church. In this way, they are also compelled to give more and do everything they can to make sure the church is successful.
At the end of the day, transparency makes the congregation feel like the success of the church is their own personal success.
Free Church Financial Report Template
Building a church financial report can be challenging, especially when you do it from scratch. That’s why our team built a free editable template you can use to get started. Simply click the image below to download it.
Church Financial Reporting Requirements
As nonprofit organizations, churches are required to manage their finances throughout the year. While churches don’t need to submit tax returns, they should draft annual financial reports representing their entire organizations.
These reports can vary from organization to organization. However, there are a few requirements that must be in every report. Here’s a quick look at these essentials.
1. Balance Sheet
A balance sheet is a statement that highlights an organization’s financial position. This document is incredibly simple and indicates the value of all the organization’s assets. The assets are totaled and compared to liabilities and equity.
The balance sheet is based on the accounting formula that states assets must equal liabilities plus equity. This document outlines and totals all assets on the left side of the ledger and all liabilities and equity on the right side of the ledger.
Most organizations list the new totals for the year and include the totals from last year. This way, you can quickly see what changed in the last financial year.
2. Income Statement
An income statement is the most important document to include in every church financial report and your annual report. The first part of this statement outlines every cent that comes into the church. The latter part of the statement indicates how the money was spent.
This income and expense statement shows the net profit or net loss for the year. Including this statement is important to indicate exactly how much money came in and how much money left your organization this year.
3. Expense Statement
While expenses are listed in the income statement, churches should also include a separate expense statement. This statement builds on the income statement and breaks down every expense further. This means that every cent that’s spent should be accounted for with a good reason that you can report to your congregation.
Expense statements can come in different forms but should achieve the same goal — to be as transparent as possible on how the organization spends its money. This statement can reference invoices but should also provide details for each purchase or transaction.
4. Fund Balances
Most churches and nonprofit organizations raise money for different needs, or funds. For example, a church could collect revenue through tithes but also wants to set up another fund specifically for outreach projects. If this is the case, you need to include your fund balances and contributions in your annual report.
These balance statements are easy to draft and should start with the opening balance for each fund at the beginning of the year. You can total the contributions for that year below the balance. Lastly, you can add them together to highlight the current balance of the fund at the end of the financial year.
Church Financial Statements Summary
As mentioned above, a financial report should include all the requirements including the organization’s balance sheet, income statement, expense statement and fund balances.
Whether you issue reports monthly or quarterly, you can add other information to make them more practical and easier to understand. This is because numbers alone don’t always showcase the full message.
Always add summaries and pictures to highlight all the projects the church funded during the period your report covers.
What Should Be in a Church Annual Report?
An annual church financial report should go further than a monthly or quarterly financial report. The annual report is usually released a few months after the end of the financial year. This document should provide a complete summary of everything the church achieved during the last year along with plans for the upcoming year.
Financial reports simply outline the financial standing of the church. This information should be included in the annual report but should be adjusted to reflect the entire year. You can have the same forms and outline, but with annual figures instead of monthly numbers.
As mentioned above, including the previous year’s figures can help you compare how the church performed relative to past years. Most organizations include three years to provide a complete picture of the trajectory of the church’s finances.
Who Is the Annual Report For?
A church’s annual report is designed for the congregation and other stakeholders that interact with the church. This can include community leaders, local authorities and even other nonprofits in the area. This is why the annual report is simplified so everyone can understand it.
Summary of Operations
An annual report does not just focus on numbers, it also presents other statistics. These statistics paint a picture of the church and what the church does. This information is useful to help highlight what the church does with the resources it has.
These stats can vary from church to church depending on what each church does. Most churches like to track their outreach projects by showcasing how many meals they provided, how many people they baptized, or how many people dedicated their lives to God in the last year.
In this way, the report can clearly indicate what the church accomplished.
Summary of Income and Expenses
The annual report can have a detailed section for finances. This includes things like the balance sheet, income statement and expense statement for the year. However, it’s important to include financial summaries with your other stats.
This is because the stats are easier for stakeholders to read and understand compared to complicated financial documents. At the end of the day, the financial documents should be drafted according to general accounting principles. This means that they are accurate, but difficult for ordinary people to understand.
The highlighted stats that come with a short summary make it easier to get your message across. Most churches highlight important figures such as how much money was collected in tithes and how much was donated to the church privately. This can help you show exactly how much money came into the church that year.
The same can be done with the expenses for the year. Most churches take the top five expenses that year and highlight them under the expenses section. You can list the total expenses on top and the five biggest expenses broken down underneath.
This makes it incredibly easy to understand the church’s finances at a glance.
The Benefits of an Annual Report
An annual church financial report comes with a host of benefits for the church. In addition to maintaining financial transparency, the report itself can be a marketing tool. This is because the report can be shared with other organizations and the community to demonstrate the good work your organization does.
This can have a direct impact on community buy-in to help motivate people to get involved. While this can result in people contributing more to the church, it can also boost attendance, volunteers and collaboration with other nonprofits and local governments.
How Do You Write an Annual Report for a Church?
Annual reports can help improve financial transparency with your church and can be used to showcase the good your organization has done this year.
This is why you should always include detailed summaries of your operations and finances when drafting these reports. But how do you write an annual report for a church? Here’s a complete church finance guide!
Step 1: Consolidate Your Monthly Reports
Before you start writing your annual church financial report, it’s important to consolidate all previous financial information. This means looking through every financial report you created in the last year. If you have not created monthly financial reports, you can go through your church bank statements to get this information.
This information helps you write the initial summaries and draft the financial documents later. It’s important to collect and consolidate the information before you start drafting the annual report.
Step 2: Verify Your Numbers
Once you have all your financial information together, the next step is to verify the data. This ensures that no mistakes transfer from monthly reports to the annual report. The annual report will be distributed to your congregation and to stakeholders around the world, so it must be accurate.
A great way to verify your figures is to compare them to your bank statements for the year. Many organizations forget a few transactions like bank fees. While they are generally small amounts, they can add up to make a big difference at the end of the year.
Step 3: Summarize Your Operations
Verifying financial information makes it easy to start writing your annual report. At this point, you should summarize your operations. This can double as a welcome letter, introducing the document and highlighting what the church has done for the community in the last year.
This summary can be one or two pages long, but shorter is better. As mentioned above, using graphics and stats is a great way to simplify the summary and make it easier for people to read and understand.
Step 4: Highlight Your Achievements
The summary of your operations can cover everything you did this year; however, you should set a section aside to highlight your major achievements. These stats can be more direct because they should be linked to the goals you set at the beginning of the year.
Most churches highlight their outreach efforts along with spiritual stats such as attendance, baptisms and dedications. This section showcases the success that followed the church’s operations for the year. As with the organizational summary in Step 3, using stats and graphics can help make your points clearer to the reader.
Step 5: Summarize Your Church Finances
The next step is to use your verified information to summarize church finances. This section of the annual report introduces the actual financial documents. However, the summary is more important because most people can read and understand it quickly.
The financial summary should outline the core parts of the church financial report. This includes metrics such as the total amount of money that came into the church and the total expenses of the church. In addition to these figures, you can break down the sources of income and the most notable expenses.
Step 6: Create Annual Financial Statements
Once the summary is complete, you can consolidate all your previous monthly financial statements into an annual financial statement. These statements should follow accounting principles so they are accurate and standardized.
The balance sheet can also include figures from the previous financial year to show how the financial position of the church has evolved. This can either show that the church improved or deteriorated in the last year.
It’s important to provide accurate statements because both scenarios can benefit the church. If the church is doing well, the community can take pride in and continue to support a successful church. However, if the church is lacking funds, the community can rally around the church to help it become more successful.
The support of your church community is the key benefit of financial transparency.
Step 7: Create Annual Income Statements
The balance sheet indicates the financial health of a church, but the income statements offer more practical information. This is because the income statements outline every source of income and every expense the church has. You can take this information from the monthly reports, but it should be annualized and compared to previous years.
Step 8: Outline Your Expense Statement
While the income statement indicates the total expenses for the year, it’s important to showcase what you spend the money on. This is where an expense statement comes in.
An expense statement takes broad terms like “operational expenses” from the income statement and breaks them down. It highlights how much the church spent on things like electricity, property tax, building maintenance and more.
Step 9: Update Your Fund Balances
If your church has specific funds set up for different purposes, it’s important that you update them in the annual church financial report.
The annual report should go further than the monthly or quarterly report to indicate the current balances of the various funds. A great way to do this is to list every fund with its opening balance. You can then highlight how much money was contributed to the fund every month during the last year. This can then be totaled to display the current fund balance at the end of the year.
Step 10: Write a Closing Summary
The last part of your annual report should be a closing summary. This summary should not be longer than a single page and should give a brief overview of the entire year. This is a great opportunity to thank your congregation and donors for their help.
The closing summary can also highlight key aspects the church will prioritize for the future. Whether you have a new goal or plan to launch a massive new project, the closing summary can help bring attention to the future of the church.
Simply put, church finances matter and having the right people overseeing them is vital. A church financial report is key to the entire process and the resources above will help you create yours.
Are there guidelines for disclosing donor contributions?
Churches aren’t required to report donations to the Internal Revenue Service, but many churches seek recognition of tax-exempt status from the IRS because this recognition confirms to church leaders, members and contributors that the church is recognized as exempt and qualifies for related tax benefits.
If a donor plans to claim a contribution, such as one given in response to a financial support letter, to a church or similar faith organization for a tax deduction, it’s the donor’s responsibility to obtain a contemporaneous, written acknowledgment of the contribution from the recipient church or religious organization.
When providing this written statement, churches should include:
- Name of the church or religious organization
- Date of the contribution
- Amount of any cash contribution
- Description (but not the value) of non-cash contributions
Are there legal requirements for church financial statements?
Churches aren’t required to provide giving statements unless there is an exchange of goods or services after receiving a donation of $75 or more. Outside of that scenario, there isn’t a penalty for not providing a contribution statement in the United States.
However, it’s still recommended that churches do provide these giving statements for several reasons. First, the statement enables donors to file their contribution as a write-off on their own taxes and they can’t legally file a donation with the IRS without written proof of what, and how much, they gave. Donors bear responsibility for obtaining a written acknowledgment from a charity for any single contribution of $250 or more before they can claim a charitable contribution on their federal income tax returns.
These statements can also be useful for a church in the event of an IRS audit, since they will have to disclose contribution and accounting info to the state. So while there isn’t a legal requirement to provide financial statements for many donations, doing so is largely beneficial for both the church and the donor.
How can a church ensure transparency in financial reporting?
Transparency matters for church finances, as it’s important to be up front with all stakeholders about the financial contributions a church receives, how it utilizes those funds and its overall stewardship of its resources.
Understanding and complying with all local, state and federal tax laws is a key part of this equation. In order to ensure transparency in your church’s financial reporting, be certain to keep accurate records of all donations and contributions it receives. Maintain those records not just through the current tax year, but beyond in case you need to refer back to them.
Having a qualified financial professional as part of your church’s financial team also helps with transparency. Whether you have a member of your congregation who works in finance or a certified professional you hire to help with taxes, their knowledge is a huge asset to your church alongside your internal financial team, treasurer or elders.
In many states, churches are also required to file an annual financial report with their secretary of state’s office.
Free Tools & Templates to Help with Church Finances
Could your church use powerful tools to help manage and maintain its finances? Here are three key resources included within our free kit to help you and your team:
- Church finance committee agenda template
- Church budget planning template
- Church finance statement template
Access all the free resources now!