Churches are not tax paying entities, and most are not subject to a GAAP audit. That changes the question from what are we required to do, to who reads these financials and what do they need to see.
Our team works through what belongs on a church balance sheet, when to capitalize instead of expensing, and what the IRS expects a nonprofit to keep on file.
This session is general guidance only and is not personal tax, accounting, or legal advice. For help with your ministry's specific situation, contact the ChurchBiz team.
Almost every question about what belongs on your balance sheet comes back to which of these three levels you are actually operating at.
01
Publicly traded companies report to the Securities and Exchange Commission. The highest bar there is, and no church operates here.
02
An outside party reads your financials. A lender, an auditor, a denomination. Assets get depreciated, prepaids get booked, and GAAP sets the presentation.
03
Where most churches live. Your financials exist to serve your elders and your finance team. Cash or modified cash is usually the right fit.
The short version of what the IRS expects a nonprofit to keep. The full article below covers digital storage requirements and the handful of documents that still need a paper original.
More on the topics from this session. The bank-ready financials article and Finance Team 101 are available now, and the rest are on the way.
Article
Solid financials are not always bank-ready. Why P&L transfers break the equity roll a lender expects, what banks look for on buildings and land, and the four to six weeks we ask for before you apply.
Read MoreComing Soon
Capitalizing versus expensing, capital budgets, debt service funds, prepaid expenses, and how to decide between cash, modified cash, and modified accrual.
In ProgressComing Soon
What the IRS expects a nonprofit to keep permanently, what to keep for seven years, what you can discard, and the five conditions digital storage has to meet.
In ProgressComing Soon
A one page policy your finance team can adopt. Sets your capitalization threshold, useful lives, and how depreciation gets handled.
In ProgressCourse
Our course for church finance teams and treasurers. Roles, controls, reporting, and the rhythms that keep a church's books healthy year after year.
Read MoreAlong with our budgeting tools, templates, video library, Finance Team 101, Church Plant Finance, and a private forum where you can ask our CPAs a question and get an answer. $297 a year. ChurchBiz clients can add it to their invoice for $20 a month with unlimited users.
The questions churches ask us most often about balance sheets, basis of accounting, and recordkeeping.
Almost certainly not. Churches are not tax paying entities and most have no legal requirement to undergo a GAAP audit. GAAP exists mainly to serve lenders and investors who need a standard they can rely on. If you have no lender and no audit requirement, your financials should be built to serve your elders and your finance team.
What matters is knowing where you depart from GAAP, so you can explain the difference or make the adjustment if a bank or an auditor ever asks.
Ask whether expensing it would distort the picture for the people reading your financials. A $100,000 HVAC replacement dropped into the maintenance line can wreck a full year of budget versus actual reporting for a smaller church. Capitalizing it moves the cost to the balance sheet, so cash goes down and fixed assets go up, and your operating report still tells you what ministry costs.
Write a capitalization policy so the answer is consistent. Many churches set the threshold at $1,000 or $5,000.
Usually not. Depreciation is a non cash expense, and there is no tax benefit for a church. Its value is information. It does not help your cash planning and it does not help your budget versus actual reporting.
An annual depreciation entry is a reasonable middle ground. It keeps asset values on the balance sheet from drifting far from reality and makes you more bank ready if a lender ever shows up.
When the expense crosses a fiscal year. If you pay a $20,000 deposit in 2026 for an event happening in 2027, expensing it in 2026 puts one year way over budget and the next year way under. Park it on the balance sheet and relieve it in the month the event happens.
For recurring costs inside the same budget cycle, like an annual insurance premium, the amortization schedule usually costs more time than the accuracy is worth. If the difference is not material, it is not a meaningful departure from GAAP either.
Modified cash means you are mostly on a cash basis with a few accrual elements added where they help. Many churches are already there without realizing it. If you use a bill pay system that syncs to QuickBooks, you have accounts payable on your balance sheet, and that is an accrual.
Giving is another common one. If your Planning Center total does not match your P&L, the difference is usually gifts in transit. Booking that accrual makes the two reports agree.
Often not, and it is usually one of three things. You are transferring amounts from the P&L to the balance sheet, your building and land are not recorded correctly or are not being depreciated, or your books are on a cash basis and the bank wants accrual.
The transfer issue is the expensive one. Sweeping restricted giving off the P&L makes your net income look smaller than what your ministry actually generated, which is where the bank starts the math on whether you can afford the payment. Our article on bank-ready financials walks through all three, and we ask for four to six weeks before you send anything to a lender.
For most records, yes. IRS Revenue Procedure 97-22 covers electronic storage in place of paper, and Revenue Procedure 98-25 covers records held in software systems. Your system has to produce a complete and legible reproduction, index records so a specific one can be located, produce readable copies on request, protect against unauthorized access and loss, and retain records for the full applicable period.
A short list still deserves a paper original: deeds, titles, notarized or sealed documents, signed wills or bequests naming the church as a beneficiary, and anything an attorney has told you to keep in paper. Scan those too.
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Our CPAs work with churches and Christian ministries every day. If something on this page raised a question about your own books, we are glad to take a look and tell you plainly what we see.