2. I. Financial Principles: Budgeting and
Record Keeping
Major Topics
๏ Budgeting
๏ Record Keeping
๏ Financial Reports
๏ Financial Controls
Chap. 6 &7 in Brinckerhoff and Chap. 6 in Hummel
Stewardship Definition
๏ Stewards are managers or guardians, those who manage for the owner. Stewards
own nothing, but their reputation depends on the ability to manage wisely and with
honesty.
Moreover it is required in stewards that a man is found faithful. (I Corinthians 4:2).
Give me an accounting of your stewardship, for you cannot be my steward any
longer. (Luke 16:2-3).
3. II. Budgeting (Hummel, chapter 6)
What is a Budget: A budget is a financial document,
showing annual income and expenses. It should be used
for financial planning and cash management. A budget is
the organizationโs blueprint. It is based upon a 12 month
fiscal year.
Steps to Developing a Budget:
๏ Development of the budget should begin 3-6 months
before the new fiscal year.
๏ Must have a strategic plan which outlines goals and
objectives
๏ Review previous year budgets for actuals
๏ New budgets: Budget โoโ, review other similar programs
4. What expenses should be included in a
budget?
๏ Include all fixed and variable costs (see page 54 โ
sampling of expenses)
๏ Use worksheets to develop projections( see page 65)
๏ Review sample budget (pp 63)
5. Determining the Income Budget
๏ Tithes and offerings
๏ Fees (determine fee structure)
๏ Events (allow for expenses incurred to conduct
event)
๏ Individual donations
๏ Grants
๏ Corporations
6. Record Keeping
Records must be kept of all income and expenses, as well as
document sources for expenditures. This is known as a
bookkeeping system. A good system should tell you:
๏ Where revenues came from and where they have been spent
๏ Assist in budgeting and calculation fund raising needs
๏ Assist in preventing the misuse of funds
๏ Save money by identifying wasteful spending
๏ Assist in determining the cost-effectiveness of each program
๏ Provide information needed to develop required financial
statements
7. Two Accounting Systems
๏ Accrual accounting โ recording of revenue when it is
earned, which may be several month before or after it is
actually received. Expenses are recorded when they incur.
(i.e., accounts receivable)
๏ Cash basis โ revenue is recorded when received and
expenses are recorded when paid.
8. Setting up the Bookkeeping System
๏ Set up an accounting system, manually or computerized.
๏ Seek the assistance of an accountant or experienced bookkeeper
๏ Components of a bookkeeping system:
Journals
๏ Cash Receipts Journal โ records all income under appropriate
category
๏ Cash Disbursement Journal โ records all expenses under
appropriate category
๏ Payroll Journal โ records all payroll transactions
๏ General Ledger โ summarizes categories of assets and liabilities.
๏ Chart of Accounts - each category of income and expenses is called
an account and is assigned a number, which makes up the chart of
accounts.
9. Financial Reports
The Financial Accounting Standards Board (FASB) sets the accounting
standards for various organizations, including nonprofits. The Evangelical
Council for Financial Accountability also set standards that faith-based
organizations can subscribe to.
Three financial reports are required:
1. Statement of Financial Position (Balance Sheet) โIt shows assets - what you own
such as cash, investments, facilities and equipment; liabilities -what you owe or other
financial obligations, such as loans and accounts payable and; net assets - whatโs left
after you subtract liabilities from assets.)
2. Statement of Activities (Income and Expense Report) it shows all income and
expenses. (see sample, pp 120, Faith-based Management)
3. Statement of Cash Flows - accurate statement of expected cash receipts and cash
disbursements of the organization over a period of 6 โ 12 months. Also know as a
proforma (see sample, pp 121, in Brinkerhoff.).
๏ Reports must be clear, concise, timely and all-inclusive.
10. Financial Controls
๏ The Board of Directors must establish adequate
financial controls to assure sound financial
management and organizational integrity.
11. The following controls should be implemented:
Internal
๏ Checking accounts - require two signatures, especially for large
amounts (i.e. $$1,000), never sign a blank check.
๏ Approval - approve expenditures through use of a check request.
๏ Cash โ determine who may handle the cash, who counts it, deposits it
and is responsible for its safekeeping.
๏ Check reconciliation โ establish procedure and reconcile monthly.
๏ Does the same person who opens the cash and makes the deposits
reconcile checking? Investigate irregularities.
๏ Reimbursement โ Determine whom on staff and board can be
reimbursed. Must provide receipts.
๏ Vendor payment โ must have invoice along with check request.
External
๏ Audit โ get annual audit conducted by an outside CPA