When thinking about your church and the different types of income that you receive, what may be a helpful way to start classifying and treating these? In this article we take a quick look at your church’s income under the areas of general giving and commercial activities, along with some items that might warrant special treatment in your church accounts.
General Giving
For many churches the primary source of income is donations, and like all aspects of the accounts, it’s important to have these recorded and allocated correctly. Accuracy is not only needed for compliance, but also to line up with the types of information that you’d like to be able to access later in your church reports.
Within the boundaries of compliance, there is quite a bit of flexibility and variety in how different churches choose to categorise general income in ways that are meaningful to their ministry situation. Some of the relevant factors to consider may include:
- Donation methods – what avenues will be available for donors to connect with you (EFT, credit card, website, cash etc), and what processes and people will be needed to manage these with good oversight, accountability and controls
- Donation streams – will all general giving (i.e., not in a special treatment category) be collated under a “general giving” heading in your accounts, or is there value in distinguishing in your reports between different congregations or different payments methods
- Donor information – how much donor information will you attempt to capture (if any) and will you be recording this against a pledge for management and/or donor update purposes
- Donor referencing – will you be making use of auto-recognition of transactions in your accounting software, and if so, are the codes or reference protocols that need to be established and communicated
- Donor coding – is your accounting system correctly configured to assign the correct application of GST legislation to donation income
Understanding your preferences in these areas will aid you in having good practices in donation data-entry to support the quality of reporting you are seeking later.
Commercial Activities
You may find that some of income that you receive from your church activities are not actually donations but are considered as commercial activity / trading income (even if only on a small scale).
Each of these income types (and the associated activities) should be assessed to determine how the income is to be understood and treated.
Some of the more common types of activities to keep an eye out for in this regard could include:
- Income from commercial rent or hire arrangements
- Bookstall / music income
- Café income
- Events income
- Income for services or staff secondments
There may be a number of factors (including the relationship to market value) to consider in determining whether an activity is commercial or not, and it may be useful to involve your church board in helping make and record this determination for future reference.
Once each type of activity or event is clarified in this way, this can then flow through into how the income is treated from a bookkeeping and GST point of view, along with any invoicing or receipting (or other documentation) that may be required to be issued to buyers.
A record of both the determination and the processing procedures for each of the items that have been identified may prove to be a handy tool and reference for those involved in the rest of the process (including your church auditor).
Then for those items where you are invoicing other for various charges, it will help to have a clear process for:
- preparing and sending your invoices to your clients
- maintaining your schedules of invoices for your regular client agreements
- keeping track of when your client pricing reviews are due
- transferring any paper-based invoices into your bookkeeping system
- ensuring that your different types of income are recorded correctly in your system
- allocating your incoming payments to your correct client invoices
- ensuring your payment information is flowing correctly from your external systems (for example PayPal)
- offering an online credit card payment option for your clients to use
This can benefit you by:
- keeping your cash flow moving and avoiding you having delays in receiving payments
- having your clients on the same page as you as to what they owe
- avoiding you dealing with lengthy and awkward calculations for missed invoices
- keeping good track of the use of your resources
One final area to consider on this topic is how you may go about handling the collection of money owed to your church. If you aren’t getting paid on time for invoices your church has issued, it can affect your church’s cash flow.
Following up your late payments might be something you put off because:
- you may feel awkward in addressing late payments with your client
- you don’t have time to work out which invoices are late
- you don’t have policies or procedures in place to know when or how to follow up late payments
You worry about this could be significantly reduced by implementing one or more of the following steps:
- setting up automatic invoice reminders to be sent to your clients
- issuing statements showing your customers what they have paid and what remains outstanding to you
- setting up a standard debt follow-up policy
- implementing regular debt follow-up tasks (emails, phone calls, referral to external collector)
This will be a case of understanding your different clients and payment terms, and the process that will work best for your church.
Special Treatment
When getting involved with church accounts, it may surprise you just how many unusual scenarios and requirements you come across with various income items.
In addition to the more regular areas of general giving and commercial activities, you also be dealing with a range of new or odd situations. Some that you may come across may include:
- Residential rental income (and associated fees and expenses) from a property that your church owns
- Government / community grants
- Donations that are specified to be used for a particular purpose
- Income into a Deductible Gift Recipient fund that your church controls
- Support tied to funding for a specific staff member’s support
- Income from a related entity in a GST grouping arrangement
- Franking credit refund from the ATO in relation to a trust distribution
- Income from the sale of assets (including property)
- Income from fundraising drives or events
This list is not exhaustive, but you get the idea of the types of things that may come up.
Again, for each item it will be important to determine:
- How the income is to be classified in the church accounts
- How the income is to be treated for GST
- Whether there is further treatment needed in the church accounts to siphon off the income to be held in reserve
- What type of receipting is required to donor and how this will be done
- Any other regulatory reporting in relation to the income
- Other records that need to be kept
And like the other income types, a record of the various items along with all the details will be very useful for future processing and review.
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