For organizations of any size, a solid understanding of your finances is important, it is especially important for small or medium and growing churches. To fully understand the financial position the current bank balance does not “paint “the full picture. The current bank balance or bank statement only shows transactions for the statement period. For a church or ministry to make good financial decisions we need to look at the overall big picture of the finances. To help with that process a basic understanding of the financial reports will help pastors, and church leaders have a better understanding of the over financial health of their church or ministry. Below are reports that should be reviewed at least quarterly and what information they collect and display.
Balance Sheet (Statement of Financial Position)
The balance sheet, known as the statement of financial position for churches, illustrates an accounting equation and shows a snapshot of your organization’s financial health. It can also show you the current balance of each of your funds if you have been doing true fund accounting. The accounting equation is:
Assets = Liability + Equity
What you own – what you owe = what you are worth
Income Statement (Statement of Activities)
The income statement, known as the statement of activities for nonprofits, shows this:
Income – Expense = Net Income / Net Loss
Statement of functional expenses. (statement of cash flow )
This report, if entries are made accurately breaks each expense down by fund and category.