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LCMS Congregational Treasurer's Manual

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LCMS Congregational Treasurer's Manual Glossary (Volume 2) Agency Funds Capital Expenditures The agency funds consist of funds held by the con- Expenditures that result in the acquisition of or addition gregation as custodian or fiscal agent for other agen- to fixed assets. The expenditures are shown as a trans- cies. Transactions of agency funds represent charges or fer out of the unexpended plant fund and into the net credits to individual asset and liability accounts and are invested in plant fund. not revenue or expense transactions of unrestricted or restricted current funds. Agency funds may be recorded Chart of Accounts A numerical listing in financial statement order of all as accounts payable in the current unrestricted fund. accounts to be used by the congregation. The accounts Assets are developed to conform with the organizational struc- The resources owned by the congregation. They may be ture of the congregation. tangible (land, buildings) or intangible (accounts receiv- able, investments, copyrights) in nature. Comparative Financial Statements Financial statements of the current period should Audit be presented on a comparative basis with financial An inspection of the accounting records and procedures statements for one or more prior reporting periods. of a business or other reporting entity by a trained ac- Comparative financial statements may present only countant for the purpose of verifying the accuracy and summarized, total-all-funds information (in a single completeness of the records. It may be conducted by column) for each of the prior periods because of space a member of the organization (internal audit) or by an limitations or to avoid the confusion that a second set of outsider (independent audit). A CPA audit determines statements might cause. the overall validity of financial statements. A tax (IRS) audit determines whether the appropriate tax was paid. Contingent Liability Liability incurred by a business (church) for acts other An internal audit generally determines whether the com- than those of its own employees. This particular situation pany’s procedures are followed and whether embezzle- may arise when an independent contractor is hired. The ment or other illegal activity occurred. See also: Financial church can be held liable for negligent acts of the con- Review. tractor to the extent that its representatives give direc- Board Designated Funds tions or exercise control over the contractor’s employees. Funds that have been set aside by the board of directors or church council for a specific purpose. These internally Depreciation A system of accounting that aims to distribute the cost designated funds may be redesignated at any time at or other basis value of tangible capital assets, less salvage the board’s discretion. (See RESTRICTED FUNDS for (if any), over the estimated useful life of the asset in a internally designated versus externally restricted.) systematic and rational manner. It is a process of alloca- Bonding of Employees tion, not valuation. The straight-line method of depre- Fidelity bonds protect the congregation up to an agreed ciation is the most reasonable one. amount against loss from employee dishonesty such Assets that are not exhaustible, such as landmarks, as fraud, embezzlement, etc. Therefore, key personnel monuments, cathedrals, historical treasures or structures (those having access to cash, securities and company used primarily as houses of worship need not be depre- records) should be bonded. ciated. Budget Endowment Fund Used to monitor financial activities throughout the year. Permanent and true endowments — funds created by The budget can provide a benchmark or comparison third-party donors with the stipulation, as a condition of point that will alert the board to the first indication that the gift, that the principal is to be maintained inviolate their financial goals will not be met. in perpetuity (principal is not expendable) and that only the income resulting from the investment of the fund Capital Appropriations may be expended in accordance with instructions by the Current funds set aside for acquisition of or additions to donor. fixed assets and shown as a transfer to the unexpended Term endowments — similar to permanent or true plant fund in the financial statements. endowments except that the terms of the gift instru- ment permit the principal to be expended all or in part upon the happening of a particular event or the passage of a stated period of time. Changes in tax law may affect accuracy of text. Copyrighted. All rights reserved. 10/18 • Glossary-1 Quasi endowments — funds established by the board erating balance (deficit) for a period and may include of directors or church council and functioning like an funds restricted by donors, such as funds for endow- endowment fund. However, they are subject to change ment, property and equipment, and loan purposes. and restoration to current operating funds at the discre- tion of the board. General Journal A journal containing all entries not recorded in special Expenditures journals. The general journal is flexible in that any trans- Recorded when liabilities are incurred. This term desig- action can be recorded in it. However, those transactions nates the cost of goods delivered or services rendered, with a high rate of occurrence, such as cash receipts whether paid or unpaid, including expenses, capital and disbursements, are more appropriately recorded in outlays, etc. separate journals. Expenses General Ledger Charges incurred, whether paid or unpaid, for opera- A book, file, or other device that contains the accounts tion, maintenance, interest and other charges that are needed to reflect, in summary and in detail, the financial presumed to benefit the current fiscal period. position and the results of financial operations. Financial Accounting Standards Internal Control Board (FASB) Consists of all measures used by a business for the FASB sets forth accounting standards for financial report- purposes of (1) safeguarding its resources against waste, ing and audits. Compliance is not mandatory; however, fraud and inefficiency; (2) promoting accurate and reli- the American Institute of Certified Public Accountants able financial data; (3) promoting operational efficiency; (AICPA) has issued guidelines, rules and regulations with and (4) encouraging adherence to prescribed manageri- which an organization must comply to receive a certified al policies. The primary responsibility for internal control audit report with a “clean opinion.” Of particular interest rests with management. to congregations are: Statement of Financial Accounting Journal Voucher Standards No. 117, Financial Statements of Not-for-Prof- Provides for the recording of certain transactions. Usually it Organizations (FASB 117) and Statement of Financial contains an entry or entries, explanations, references to Accounting Standards No. 116, Accounting for Contri- documentary evidence supporting the entry or entries butions Received and Contributions Made (FASB 116). and the signature of one or more properly authorized Financial Review officials. A verification of the financial acts of the treasurer and Liabilities others with financial responsibility. The “financial re- Debt or other legal obligation arising out of transactions view” is informal in relation to the more formal “audit” in the past that must be liquidated, renewed, or refund- which must be performed and certified by a Certified ed at some future date. Public Accountant. Petty Cash Fund A system for handling minor disbursements whereby a A fiscal and accounting entity with a self-balancing set fixed amount of money, designated as petty cash, is set of accounts recording cash and other financial resources aside for this purpose. Disbursements are made from together with all related liabilities and fund balances and time to time as needed, with a receipt voucher being changes in the fund balances. Separate accounts are completed in each case. At certain intervals or when the maintained for each fund to ensure observance of limita- petty cash is completely expended, the petty cash fund tions and restrictions placed on the use of resources. is replenished for the amount of disbursements. The Fund-Accounting System total of petty cash on hand plus the amount of signed Funds are separated into individually balanced groups receipt vouchers at any one time must equal the total according to their end use. The procedures by which amount of petty cash authorized. resources for various purposes are classified for account- Property (Plant) Funds ing and reporting purposes are (1) in accordance with In this fund are the fixed assets owned by the congrega- activities or objectives as specified by donors, (2) in tion and related accounts. They include land, building accordance with regulations, restrictions, or limitations improvements and equipment, the obligations relative imposed by sources outside the district, or (3) in accor- thereto, and unexpended property funds. dance with directions issued by the board of directors. *Note: Fund-accounting does not comply with Gener- Reimbursement Pay back for expenses incurred. ally Accepted Accounting Practices and is not used with financial reports prepared in accordance with FASB 117. Restricted Funds (Current) Fund Balance Current restricted fund balances represent funds available Represents the net assets and/or the accumulated op- Glossary 2 • 10/18 Changes in tax law may affect accuracy of text. Copyrighted. All rights reserved. for financing operations that are restricted
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