Accounting Basics

Accounting Basics

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ACCOUNTS

Standard accounting uses "accounts" to store information to generate the various reports needed to track the assets of an organization. It divides these accounts into five basic types:

Assets

Cash on hand

Bank Accounts

Furniture and Fixtures

Buildings and Land

Liabilities

Loans and Mortgages

Owner's Equity

Fund Accounts

Income

Tithe

Offerings

Expenses

Utilities

Payments on loans

Payroll

Taxes

The basic accounting formula is that the total of all of the Assets equals the total of all of the Liabilities and Owner's Equity. The income and expense accounts are summarized in an Owner's Equity account usually called the Current Earnings account. In this system every income and expense account is associated to a Fund Account (Owner's Equity Account). As entries are made in the income and expense accounts, the associated fund account is updated.

Every fund is assigned an Owner's Equity account to track all of its activities. In addition to this each fund has at least one income account and one expense account. More income and expense accounts can be created to track the fund in a greater detail.

For instance the Tithe Fund could have the following accounts:

3100 Tithe Fund (Owner's Equity)

4100 Tithe Received (Income)

5100 Tithe Paid to Pastor (Expense)

5101 Tithe Paid to General Headquarters (Expense)

5102 Tithe Paid to State Headquarters (Expense)

5103 Tithe Paid to Other (Expense)

For instance the Missions Fund could have the following accounts:

3200 Missions Fund (Owner's Equity)

4200 Missions General Receipts (Income)

4201 March Mission Drive (Income)

4202 October Mission Drive (Income)

4203 Mexico Mission Drive (Income)

5200 General Mission Expenses (Expense)

5201 Offerings Sent to Mexico (Expense)

5202 Offerings Sent to Bishop Smith (Expense)

5203 Offerings Sent to UNICEF (Expense)

By creating extra income or expense accounts the "Income Statement" will display the detail of these accounts.

FISCAL YEAR

A fiscal year is an accounting term used to indicate the accounting period that is considered to be the "year" for a business entity. If the fiscal year begins on June 1st, this means that the accounting year is from June through May. The End of the Year Closing program should be run at the end of the fiscal year. There is no need to close at the end of the calendar year unless your fiscal year is also January through December.

The Income Statement, Balance Sheet, and Fund Summary reports use the fiscal year as the basis of their reports. If the fiscal year begins on June 1st, to print a report for the entire year the "Thru Month" would be 5 (May).

This system keeps all donor and vendor records on a calendar year basis regardless of the fiscal year. That is January through December.