M I N I S T R Y M E M O:
From: Brad Pendable, CFO RE: Building Fund Accounting
To: Fellow MFT-Teammates Originated in January 2003
A little background first .... a part of the my Job Description at the Church-Ministry where I now serve says something like the following:
"We are in a part of the USA where a number of Ministries are located and they need help from someone who is familiar with the nuances of Ministry Finances. So, as a specialized missionary under our direction and fully financially supported by this church, we have retained Brad Pendable to, not only serve on our staff as our Financial Vice President or equivalent, but also be available for such purposes to help other Christ Centered Entities like Churches and Missionary Organizations."
Of course, I am available for Online Seminars, but, what I probably enjoy the most is being an active remote Associate member of the Ministry Finance Team - MFTeam (or Board Finance Committee) of the applicable Ministry. So, as you can see, I deal with various MFTeamates, or colleagues, and there continues to be questions as to my views of how they could do their Building/Construction accounting. I have, therefore, decided to document them in this QUESTION AND ANSWER format. To remind you ... since retired CPA Jim Bee is VERY close to me, much of my perspective flows from working with him down through the years. Plus, he has allowed me to link to various documents on his web site that tie into what I am sharing below.
By the way, he just placed 5024 out on his web site that also covers some of the topics I will cover below. I believe he also plans to put some data along these lines in his next JIMs JRNL. For example please Click Here for a sample Actual to Budget Bldg project financial report.QUESTION #1
Brad, why are Building Funds at a Church (or any other Christian Ministry for that matter) not the ordinary restricted or specialized funds within this context?
ANSWER #1
As Jim Bee points out within his 0041 foundational "Fund Accounting" document, monies come into a Ministry that must be used for unique operating purposes at the Ministry and it MUST use appropriate accounting techniques and principles. There are General Fund monies that are to be used for the general operations of the Ministry, plus there are also Special Purpose monies that either come in from donors or they are General Fund assessments by the Board for special approved operational areas of the Ministry.
QUESTION #2
OK, but where does a Building Project fall into this "Fund Accounting" equation? My understanding is that such monies would include: 1> Pledges, or special designated donations/offerings; 2> Budget monies transferred from the General Fund as explained within 5019; 3> Plus, of course, necessary Loan proceeds. 4> And, of course, expenditures would obviously be for new property or facility that ultimately needs to be capitalized as fixed assets.
Or these transactions are not the ordinary Ministry operational matters.ANSWER #2
How true. Let me share my view of the accounting and reporting objectives that must result from this needed "Fund Accounting" process:
Show current status of how much is available for the Building Project (note I said "project" here and not "Operations".
NOT have a separate Building Project checking account.
Increase assets (Building Project or Construction in Process)
Increase liabilities (book payables when incurred; show the amount of Building Project loan proceeds.)
Not confuse the vital accounting and reporting of your normal Church operations.
QUESTION #3
Sounds to me like all of this could get very 'messy". Can you give us some examples?
ANSWER #3
OK. Let's begin with a very simple Trial Balance that I display in two sections below --- you will notice that I have significantly abbreviated the Chart of Accounts in the first section below.
1st Section:
Type of
Name or ID
Debit
Credit
Asset
Common Bank/Savings
$ 13,298.00
Equity
Missions Special Purpose Fund (SPFund) Bal
$ 2,115.00
Equity
Other SPFund Balances
$ 4,201.00
Equity
Board Discretionary SPFund Balances
$ 2,955.00
Liability
(a) Bldg Project Clearing
$ 4,313.00
Income
General Fund, or GPFund Donation Income
$ 85,554.00
Income
GPF Other Income
$ 4,579.00
Expenses
GPFund Sal/Benefits
$ 51,847.00
Expenses
Facility Debt Service-Interest Exp
$ 5,400.00
Expenses
Paid on Principal
$ 3,325.00
Expenses
Prop/Facility Expenses
$ 4,150.00
Expenses
Ministry Expenses
$ 17,142.00
Internal Transfers
To/from GPFund and SPFunds
$ 8,555.00
$ -
Total
$ 103,717.00
$ 103,717.00
(a) See more comments below
In the 2nd Section of my Trial Balance below, I have clearly identified the portion that pertains to just the Church's "Land, Building and Equipment - LB&E" matters. You will note in 0127 that Jim Bee prefers to have the LB&E info in a second set of books, or via another option in what he calls "Memo Accounts" as explained within 0102 . But, I believe it can be in the same set of books as long as you carefully distinguish it. Usually a distinct set of Chart of Account numbers helps; especially when you make "three legged" entries mentioned within 0111 . If you are a user of Quickbooks (QBs) , ask me about the "integrity proof" process.
The important thing is that all info about the LB&E can be readily known and internally proofed. Please note that the report below includes such data as:
Amount invested in LB&E before the current project
Amount on hand ($4,313.00) for the current project;
Reflection during the year of fixed assets or liabilities paid by the General or Special funds of the Church;
More complete Bldg Project info, or how such money came in and was spent.
Note that this info may cover more than one fiscal year as Bldg Projects are seldom fiscal year oriented.
2nd Section:
Type of Account
Name or ID of Account
Debit
Credit
asset
Before Project - Land Building & Equipment
$ 950,000.00
(LB&E) See Excel doc for details
asset (as offset)
Accumulated Depreciation through end of
$ 50,000.00
previous year... see Excel doc for details
asset
New Property
(a)
$ 25,845.00
asset
Bldg Project or Construction in Progress
(z)
$ 78,739.00
asset
Bldg Project Clearing
(z) (w) (y)
$ 4,313.00
liability
Old Mortgage Payable
(b)
$ 3,325.00
$ 150,000.00
liability
Loan Payable - loan proceeds
(z)
$ 32,500.00
equity
LB&E Equity
$ 750,000.00
equity (extend)
Donation receipts B4 2001-2002 FYE
(z)
$ 5,445.00
equity (extend)
Donation receipts 2001-2002 FYE
(z)
$ 45,107.00
equity (extend)
Cross Fund-Prov by GPFund 2001-02 FYE
(b) (y)
$ 3,325.00
equity (extend)
Cross Fund-Prov by SPFund 2001-02 FYE
(a) (y)
$ 25,845.00
Sub-Total
$1,062,222.00
$1,062,222.00
(a)
To record the property acquisitions as provided via a SPFund
(b)
To record the principal paid as part of the GPFund budget
(w)
This account balance MUST always agree with "Bldg Project Clearing
SPFund" account
(z)
Throughout the year all such activity flows through the "Bldg Project Clearing SPFund
SPFund account. Then such tranx are duplicated here and
placed in their respective accounts.
(y)
Corporately such accounts zero out.
What is not shown herein is any Equipment purchased during the
year from either GPFund or SPFund and the annual depreciation
accounting required by GAAP
QUESTION #4
I think I follow most of this as these two Section contents seems to meet most of my accounting and reporting requirements. In some respects Jim in 0127 seems to be correct regarding a completely separate set of books since you are actually keeping a self balancing portion within one overall double entry set of books as set forth above by the self balancing two Sections. But why the need to have two offsetting "Bldg Project Clearing" accounts?
ANSWER #4
Viewing the balance in the "Bldg Project Clearing" account serves the basic internal only "Fund Accounting" purpose of always knowing how much of the Common Bank/Savings account is available for the Bldg Project ...... which , of course, includes non operational borrowed money and LB&E (fixed asset) transactions.
Reference is: BldgFundAcctg.html - Updated as of: October 22, 2011