Money Matters

Church accounting 101: What you need to know 

Managing your church’s finances? Learn the basics of church accounting and gain the clarity you need to make confident decisions and manage finances easily.

February 4, 20268 min read Share

Managing church finances is about stewardship, trust, and accountability.

Whether you’re a pastor, treasurer, bookkeeper, or board member, understanding church accounting helps make sure donations are managed responsibly, compliance requirements are met, and your church can stay focused on its mission. 

Key takeaways 

• Church accounting ensures donations are tracked, expenses are managed, and funds are used as intended. 

• Separating restricted and unrestricted funds helps honor donor intent and build trust. 

• Balance sheets, income statements, and donor reports provide visibility and confidence. 

• Consistent records, basic controls, and the right tools make church finances easier to manage, even with limited staff. 

Here’s what we’ll cover:

What is church accounting and bookkeeping? 

Church accounting is the process of recording, organizing, and reporting your church’s financial activity to support transparency, accountability, and compliance.

It helps your team track donations, monitor expenses, produce accurate financial statements, and demonstrate responsible stewardship of resources. 

While church bookkeeping focuses on day-to-day tasks—such as recording donations and paying bills—accounting takes a broader view.

It covers budgeting, reporting, and nonprofit compliance, often using tools like a church chart of accounts to organize financial data.

Together, they provide a clear and reliable foundation for effective church financial management. 

Why is church accounting different from standard bookkeeping? 

Your church doesn’t operate like a traditional business, so your accounting practices shouldn’t either. 

While some of the mechanics are very similar, the purpose and expectations are often very different. These key differences explain why accounting for your church requires a specialized approach. 

Nonprofit versus for-profit goals 

Businesses exist to generate profit for owners or shareholders. Your church exists to serve a mission.

Every dollar your church receives is meant to support ministry, outreach, and community—not to create financial gain.

This mission-driven focus directly shapes how your church finances are tracked, reported, and evaluated. 

Fund-based approach 

Unlike most commercial businesses, your faith-based organization should use fund-based accounting. This approach tracks money by its intended purpose, rather than combining all funds into a single total.

Church fund accounting helps make sure donations are used exactly as donors intended—whether for general operations, missions, or a building project. 

Transparency requirements 

Your church is accountable to its congregation, governing boards, and the IRS.

While churches have unique tax considerations and exemptions, they’re often held to higher transparency standards than many small businesses.

Maintaining clear records and consistent reporting—including strong bookkeeping for churches—helps build trust and reduce financial and compliance risks. 

How church fund accounting works 

Let’s dive a bit deeper into how church fund accounting works.

As mentioned above, this approach tracks money by its intended purpose, rather than focusing solely on total income and expenses.

It provides clear visibility into how funds are received, allocated, and spent—an essential part of protecting donor trust and maintaining financial integrity within your church. 

Restricted versus unrestricted funds 

• Restricted funds are donations designated for a specific purpose, such as a building fund or a mission trip. 

• Unrestricted funds can be used for general church operations, including utilities, staff salaries, and supplies. 

Purpose-specific donations 

When donors give toward a specific cause—such as outreach programs, capital improvements, or benevolence—those gifts must be tracked separately.

Purpose-specific tracking helps your church avoid misuse, simplifies reporting, and provides clear documentation if questions ever arise. 

Tracking multiple funds 

Most churches manage several funds, including: 

• General funds 
• Missions funds 
• Benevolence funds 
• Building or capital funds 

Maintaining separate records for each fund is critical for accountability.

While managing multiple funds can feel complex, using church accounting software makes it far more manageable for you and your team. 

Setting up a church chart of accounts 

A church chart of accounts is a structured list of all financial categories your church uses to record transactions.

A well-designed chart of accounts should accurately reflect how your church operates, rather than relying on a generic business template. 

Organizing income categories 

Income categories help you understand where money comes from. Common examples include: 

• Tithes and offerings 
• Designated donations 
• Fundraising events 
• Grants 

Breaking down expense lines 

Expense categories show where money goes. Typical church expenses include: 

• Staff salaries and benefits 
• Facilities and utilities 
• Ministry programs 
• Office and administrative costs 

Allocating funds properly 

Each transaction should be tagged to the correct fund.

For example, a donation given to a building fund should be recorded as building fund income, and any related expenses should be applied to that same fund.

Templates and automation tools can make it easier to allocate funds correctly, reducing errors and saving time. 

Many churches use software to support structured charts of accounts and simplify allocation without adding complexity. 

Creating and maintaining your church finance report 

Clear and consistent financial reporting is essential for leadership oversight and building trust within your congregation.

A good church finance report brings together a few core documents that give you a complete picture of your church’s financial health. 

Church financial statements 

Church financial statements provide an overall snapshot of your church’s finances.

When reviewed together, they help you and your leadership team understand available resources, existing obligations, and long-term sustainability. 

Church balance sheet overview 

A church balance sheet shows what your church owns and what it owes at a specific point in time. It typically includes: 

• Assets: cash, buildings, equipment
• Liabilities: loans, unpaid bills
• Net assets: restricted and unrestricted balances 

Income statement details 

The income statement summarizes your church’s financial activity over a set period, including: 

• Revenue (donations and other income) 
• Expenses 
• Net surplus or deficit 

This report helps you evaluate whether your church is operating within its means and adjust plans as needed. 

Donor and contribution reports 

Donor reports track giving activity and support compliance with IRS acknowledgment requirements. They typically include donation dates, amounts, and designations. 

Church accounting best practices

Effective church accounting best practices are primarily about cultivating healthy habits that foster stewardship. 

Consistent record-keeping 

Accurate records prevent confusion and mistakes. Helpful habits include: 

• Recording transactions promptly.
• Keeping documentation for donations and expenses. 
• Using consistent categories. 

Internal controls for security 

Internal controls are safeguards that protect your church’s funds and assets. 

If you’re part of a small church, you can also implement simple controls, such as separating donation counting from recording or requiring dual approvals for payments. 

Timely reconciliations 

Reconciling bank accounts makes sure your records match reality. Regular reconciliation helps catch errors early and becomes routine with practice. 

Budgeting essentials for small church bookkeeping 

Budgeting can feel challenging, especially when your church has limited staff and fluctuating income.

Even so, church budgeting is one of the most valuable tools you can use to plan responsibly and support long-term sustainability. 

Setting realistic goals 

Start with honest, practical projections: 

• Review past giving trends. 
• Estimate known and recurring expenses. 
• Build in flexibility for seasonal changes or unexpected needs. 

Allocating funds efficiently 

Many churches use percentage-based guidelines to allocate funds across ministry programs, staffing, and operations.

These frameworks provide your church with structure while still allowing you to adapt as priorities change. 

Reviewing progress monthly 

Monthly budget reviews help you spot issues early and make timely adjustments.

Over time, this regular check-in transforms budgeting into a reliable tool for informed and confident decision-making. 

Church finances, transparency, and compliance 

Transparent financial processes reduce risk, strengthen trust with your congregation, and support responsible stewardship. 

IRS considerations 

While churches have unique tax treatment, you still has significant responsibilities, including: 

• Maintaining accurate financial records. 
• Providing proper donation acknowledgments.
• Handling allowances (such as housing allowances) correctly. 
• Declaring and paying certain types of employment taxes as well as Unrelated Business Income Tax (UBIT).

Clear donor communication 

Regular, easy-to-understand financial updates help your church’s donors feel confident that their gifts are being used responsibly.  

Regular audits or reviews 

Not every church requires a formal audit, but an annual internal financial review is a minimum requirement.

Regular reviews demonstrate good governance and help you catch potential issues early. 

Using church accounting software to streamline tasks 

Spreadsheets can work for a time to help you manage your finances, but they often become limiting as your church grows.

Intuitive church accounting software is designed to handle fund accounting, reporting, and compliance more efficiently. 

Churches like Grace Fellowship Church and Bethel Church of Redding have discovered how solutions such as Sage Intacct help improve financial visibility, strengthen accountability, and support more confident decision-making. 

• Automating data entry: automation reduces manual work and lowers the risk of data entry mistakes, freeing up your team to focus on higher-value tasks. 
• Tracking contributions online: online giving tools can integrate donations directly into your accounting system, improving accuracy and simplifying record-keeping for your church. 
• Simplifying reporting: built-in reporting tools make it easier for you to generate church financial statements and donor summaries without having to start from scratch. 

How to simplify bookkeeping for churches with limited staff 

If your church relies on volunteers or a small team, you understand the importance of simplicity.

Streamlining your church bookkeeping processes can help reduce stress while improving accuracy and accountability. 

Segregating duties among volunteers: dividing responsibilities—such as counting donations, recording transactions, and approving payments—strengthens accountability and helps prevent burnout among volunteers. 

Leveraging online tools: cloud-based tools make it easier for you and your team to collaborate securely from anywhere. Helpful options include accounting software, online donation platforms, and document storage solutions. 

Outsourcing complex tasks: outsourcing tasks like payroll processing, audits, or tax guidance can be a cost-effective way to reduce compliance risk—especially when your church has limited internal resources. 

Final thoughts 

When you understand fund accounting, establish strong financial habits, and select tools that meet your needs, your church can manage its finances with greater clarity and confidence—regardless of its size.

The right systems help support transparency and accountability, allowing you and your leadership team to stay focused on what matters most: your mission. 

Church accounting FAQs

What does a church accountant do? 

A church accountant manages financial records, prepares reports, and supports budgeting.

They help your church remain compliant with nonprofit and IRS requirements, giving church leaders clearer insight and greater confidence. 

How can we handle a pastor’s housing allowance? 

Housing allowance must be designated in advance by your church and properly documented.

While it’s excluded from taxable income for income tax purposes, it’s still subject to self-employment tax, which makes accurate record-keeping especially important.