Church Financial Reporting
& Recordkeeping
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.
Watch: Balance Sheets and Record Retention
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.
The Three Tiers of Reporting
Almost every question about what belongs on your balance sheet comes back to which of these three levels you are actually operating at.
Public Filing
Publicly traded companies report to the Securities and Exchange Commission. The highest bar there is, and no church operates here.
Bank or Audit Ready
An outside party reads your financials. A lender, an auditor, a denomination. Assets get depreciated, prepaids get booked, and GAAP sets the presentation.
Internal Use Only
Where most churches live. Your financials exist to serve your elders and your finance team. Cash or modified cash is usually the right fit.
Record Retention at a Glance
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.
| Keep For | Records |
|---|---|
| Permanently | Articles of incorporation, bylaws, IRS determination letter, Form 1023, state exemption filings, board and committee minutes, housing allowance designations, IRS filings, deeds and titles, mortgage and loan documents, depreciation schedules, restricted and designated gift documentation, retirement and benefit plan documents, annual financial statements. |
| Seven years | Payroll registers, pay stubs, timesheets, W-2s, W-4s, 1099s, Form 941s, bank statements and reconciliations, contracts and leases, grant files, insurance policies. |
| Through the fiscal year | Offering envelopes, count sheets, deposit slips, routine correspondence, interim monthly reports. |
Related Articles
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.
Every ChurchBiz Live session lives in the Hub
Along 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.
Quick Reference
The questions churches ask us most often about balance sheets, basis of accounting, and recordkeeping.
Does our church have to follow GAAP?
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.
Should we capitalize a large purchase or just expense it?
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.
Do we need to book depreciation every month?
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 is a prepaid expense worth the trouble?
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.
What is modified cash basis, and are we already using it?
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.
Our bank asked for financials. Is what we already have good enough?
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.
Can we store our records digitally instead of keeping paper?
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.
Not Sure Your Balance Sheet
Tells the Truth?
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.