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Church Finance, Accounting and Reporting - Part 3

Historically, churches have not been run much on professional grounds. Their records have mostly been kept on small papers and exercis...

Historically, churches have not been run much on professional grounds.

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Their records have mostly been kept on small papers and exercise books, which in most cases disappear without proper accountability.

The chaos associated with church accounting and finance has cast a shadow of doubt even on the motives behind the establishment of some of the ministries. Considerable membership has been lost along the way, splits have been witnessed; with people pointing fingers at each other for misuse of public funds!

4. Basic Accounting Concepts:
The accounting profession is primarily governed by Generally Accepted Accounting Practice (GAAP); which is a compilation of basic accounting principles and concepts applied across many countries in the world. Churches are not spared either; they are expected to observe the same in their accounting and reporting. Amongst many of these principles and concept; below are the three basic ones that every church should adopt and implement:

(a) Consistency Concept

The consistency concept conscientises church leaders that when they begin to apply their policies, they should remain consistent in doing so. Changing from one policy practice to the other causes a lot of confusion to both the preparers and users of the information. For instance, if the church adopts a policy which says that honorarium collected on Big Sundays be given to the resident pastor in full, the practice should remain consistent at least for the foreseeable future. Where a policy change is instituted, there must be reasonable cause to do that; and such changes must not be frequent. Otherwise it then defeats the whole purpose of having policies as church guidelines.

(b) Accruals Concept
The accruals concept seeks to equip administrators to be able to accrue expenditure in their books when it is incurred even before it is paid. This concept seeks to address the common problem in churches where bills are left piling up without being recorded anywhere. Administrators are usually guilty of declaring surplus cash balances in church when in the background the church is owing thousands of bills that are not declared anywhere. All church expenses must be declared in full, whether they have been paid or not. The balance sheet must then show the total amount owing to different suppliers/service providers.

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(c) Prudence Concept
The prudence concept seeks to address the problem of over-planning in churches. Most administrators are normally accused of lacking faith in their planning (really??)! This is because their God-given gifts require them to balance between faith and reality. Take for instance, a conference chairman who has failed to feed 5000 people in attendance for the last five years, comes up with a conference budget that he is able to feed 20000 people in attendance in his sixth year of chairmanship! And when you look at the factors on the ground, nothing has changed in any way.

The reality of the matter is that the chairman is planning to fail!

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The prudence concept throws a headwind of caution against such wild dreams. Even God, in all his supremacy and sovereignty, created the universe in a systematic way. For six days he carried out his plan, and rested on the seventh day. Genesis 2:2, “And on the seventh day God ended His work which He had done, and He rested on the seventh day from all His work which He had done”. God could have done everything in a split second because HE CAN; but he chose to apply the prudence concept for gradual creation, at least for all for us to learn!
The series continues in Part 4.
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