Basic Church Accounting - Single Entry Or Double Entry Bookkeeping?

Basic church accounting is knowledge every financial staff member in your church should have in deciding which accounting system to use.

Most small churches rely on volunteers, some of which have little or no accounting experience...just obedient hearts to help their church in any way they can.

My advice to these wonderful people is to research, research, and research some more; especially church staff here in the United States that have to follow the guidelines of the IRS in order to keep their tax exempt status.

So here is some basic church accounting concepts to help you better understand your church's bookkeeping.

1. The very basic definition of accounting is the documentation of a transaction.
2. There are two basic accounting practices: single entry bookkeeping and double or dual entry bookkeeping.

Single entry bookkeeping is an accounting practice that can be employed by small organizations where a profit and loss statement or balance sheet is not required for financial control or tax purposes.

Double entry bookkeeping is an accounting technique to record the financial transactions of an organization where every transaction is entered twice, equal and opposite transactions. Double entry is required for all organizations that must produce both a profit and loss account and a balance sheet.

Double Entry Bookkeeping:

Understanding of debits and credits is the foundation of understanding accounting systems. Because every business transaction affects at least two accounts, each transaction is recorded using a double entry system of debits and credits.

In accounting, accounts are set up to look like a "T" and are actually called T accounts, very imaginative huh? In this "T" account, amounts entered on the debit side (left hand side) are called debits and amounts on the credit side (right-hand side) are called credits. "To debit" means to make an entity in the left-hand side of an account' and "To credit"' means to make an entry in the right-hand side of an account.

Important point! The words debit and credit have no other meaning in accounting. Most people think a debit and credit as a positive or a negative. They are not either.

Basic points for double entry bookkeeping:

1. A debit or credit will either increase or decrease the account balance...depending on what type of account you are working with.
2. For every increase in one account, there is an opposite (and equal) decrease in another. That's what keeps the entry in balance.

Remember...debits always go on the left and credits on the right.

Single Entry Bookkeeping:

There are advantages and disadvantages of using a single entry bookkeeping system.

1. The main advantage is the simplicity. It involves the simplest form of keeping records of financial transactions. Essentially the organization makes two lists, one of income received and one of expenses incurred. This is beneficial for organizations with volunteers with virtually zero accounting or bookkeeping knowledge.
2. It is essentially like a check register. You credit (right side) your increases and debit (left side) your expenses...all the while keeping a running daily balance. I know this is opposite of your checking account, so think of it as a mirror image of your checking account. I could go into detail here how come it is opposite but I would probably confuse you even more than I already have. Just know that your checking account is opposite because it is a liability account for your bank.
3. The main disadvantage of single entry bookkeeping is the absence of financial control due to limited detailed records of asset and liability accounts.

It is also easier to make errors with. With double entry bookkeeping everything must balance.

Whether you use a double entry or single entry accounting, understanding basic church accounting concepts are knowledge anyone doing the bookkeeping for your church should have.

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