Welcome again everybody thank you for
showing up here today my name is Alex and I'm the head of support for
Aplos and we are the company that's hosting this webinar as you know and
what we're going to be going over today are fund accounting basics for
nonprofits and if you're a church and you're in here this will apply to you as
well but the terminology that I use will be a little more non-profit specific so
just keep that in mind but the the whole of the content will be applicable to
just about anybody that has use of fund accounting and what we're going to be
going over today again is kind of the fund accounting basics but we're going
to answer three main questions about your accounting today the first is going
to be what is accounting we're gonna take a very basic look at what
accounting is and how you can begin to understand it and use it for your
organization next we're going to take a look at what is fund accounting so how
does accounting work but then how does that kind of change or how is it
different for nonprofits in churches specifically with fund accounting and
then lastly we're going to take a look at the question of how do I keep track
of my organization's finances okay so there's going to be the three questions
for today so let's take a look at the first one what is accounting well in
short accounting is keeping track of your stuff and really that's kind of an
overarching general description but really it boils down into five different
areas that you're going to track and these are the five areas of accounting
and this is the money that you own so your possessions money that you owe so
your debt or payables to anybody else the ways that you get money otherwise
known as your income the ways that you spend money or your expenses your bills
and then it all kind of boils down to your overall
worth and so using these five areas of accounting you can begin to keep track
of things for your organization and in accounting these five different areas
have some unique names here so the money that you own is referred to as your
assets or assets the money that you owe so again your
debt is called your liability okay the ways you get money is called your
income the ways that you spend money is called your expense and then your
overall worth is known as your equity so let's take a look at an example real
quick so let's say we're gonna use an example of personal finance here so
let's say that at the beginning of the day you have $10,000 in your bank
account which first of all congratulations that's great but you
have $10,000 in your possession right now and that is money that you own okay
it's yours you possess that money so therefore it's an asset you can see
right underneath the little house there there's my beginning balance of 10,000
and that's my asset so then I go to work and I get a paycheck and let's say I
earn $1,000 worth of income and so that is money that I am receiving so
therefore that's the other another area of accounting right there is the ways
that I get money right so there's income for $1000 so with that thousand dollars
of income my new balance of my personal asset the money that I own is $11,000
okay so next moving down you have expenses so let's say I go I pay my my
car payment and my pizza and keep the lights on all of my bills for the month
and those come out to about $800 worth of money that I am spending otherwise
known in accounting as your expenses okay so I had the eleven thousand
dollars after my income I spent eight hundred so at the end of this example at
the end of the day I now have ten thousand two hundred dollars as my new
balance of my asset so again going back I had ten I made a thousand which
brought me to eleven I've spent eight hundred so now I have ten thousand two
hundred dollars in assets and so this is a an everyday thing that you're gonna go
through so you have money you spend money you make money
I mean that really is accounting right there so those are only three areas of
accounting the assets income and expense so how does this play into your
liabilities and your equity well let's take the other half of a example and say
that that ten thousand two hundred dollars that I have again is money that
I own it's mine right but is that really what I'm worth is that how much money
that kind of you know overall how much worth
I have as an individual well let's say that I have $5,000 worth of a student
loan outstanding so this would be considered my liability its debt its
money that I owe somebody else okay and this actually counts against the
money that I have so I may have ten thousand two hundred dollars in the bank
but I owe five and at to somebody else so really at the end of the day what I'm
truly worth is five thousand two hundred dollars which is what I call my equity
okay so this example altogether takes it looks like this so again ten thousand
dollars that I had I made a thousand of income so now got eleven I spent eight
hundred so at the end of the day I've got ten thousand two hundred dollars now
I have ten thousand two hundred dollars but I also owe five thousand so my
overall worth there my equity is five thousand two hundred dollars okay now
again you use this on a daily basis so you track the money that you make from
your jobs the money that you spend on your bills and then how much you have
left over at how much you owe so accounting is again just keeping
track of your stuff it's keeping track of how much you make how much you spend
what you owe how much you have and then what do you kind of boil down to of your
overall worth so what is a what is sorry let me here oops what's that guy a
little technical difficulty here okay so let's take a look at the second question
here what is fund accounting so accounting again is keeping track of
your stuff and then fund accounting is actually a different category it's a
further detail the process of accounting that churches and nonprofits use that
focuses on accountability rather than profitability excuse me so any
organization whether it's a business or a non-profit you want to know whether or
not you're profitable whether or not you're making money but the the purpose
of fund accounting is not this to not only track profitability but this
concept of being accountable so with a church and a non-profit you have need
most often to keep track of designated designated areas within your
organization so to use the example of a church right so if a church has
general fund where all of your kind of tie then all your money comes in and
that's kind of your your your main source of income there that goes into
your kind of general purpose where you pay the bills and you pay your employees
and keep the lights on that's kind of your general fund but then let's also
say that you have a missions fund and a building fund
so that's two other areas within your organization that you were kind of
stashing money away or aside for for whatever designated purpose now each one
of those funds is going to have its own balance its own income its own expense
even its own debt and overall equity so it's like almost keeping track of a
little mini organizations within your larger hole so to use another example of
like personal finance so personally you have a bank account and you have bills
of your income like the example we took a look at but if you want to stash away
money to go on a vacation then that would be the concept of a fund so that's
money that you get and then out of my money I'm kind of portioning out a
certain amount towards this different purpose which would be a fund that you
want to keep track of so again here's an illustration so you have your money and
then you distribute that money to different things so here's the money I
have set aside for my building for our missions for my operations different
things so here's an example that we can take a look at here so let's say that
you have three thousand dollars in your checking account as a nonprofit ok this
is money that again you have received through donations and just gained
through revenue maybe and then you spend to keep the lights on and then you apply
for a grant and this grant gives you five thousand more dollars but this this
grant has a unique purpose to it so it has to be spent in a very specific way
so when you receive this check for $5,000 and you go to the bank and
deposit it your checking account all of a sudden goes up to $8,000 but you know
and that only five of it is really only five of it is kind of set aside from
everything else to be used for that grants purposes okay
so that's where this fund accounting comes into play so fund accounting would
allow you to take a look at your checking account and see not only do I
have eight thousand dollars but three this for me and five of it this for this
fund that I need to keep track of separately okay so when I coach people
on how do you figure out what a fund is for your organization so do I keep track
of you know a fund for my Amazon account or do I keep track of a fund for you
know a different campus or something really if you need to answer this
question here do I need to know how much money I have set aside for blank the
answer that blank most often than not is going to be a fund that you want to
create so again a fund has its own balance it's got its own income its own
expense its own ongoing worth you know so if you can answer that question write
those down and the answer again to that blank is probably going to be the name
of a fund that you want to create in your fund accounting system so the third
question here how do I keep track of my organization's finances so as a kind of
a quick recap we talked about accounting and accounting is keeping track of your
stuff right the money that you own o receive spend and your overall worth
fund accounting snaps another piece onto that so it's still accounting but it's
accounting for each kind of division or fund within your organization so to
track this to keep track of those ongoing balances and the money you're
receiving and spending and all that kind of stuff you want to have what's called
an accounting system in place and an accounting system most commonly these
days is a software but it's really a software or a process put in place to
keep track of those five areas of accounting which again are your assets
or the money that you own your liabilities the money that you owe
income is the way that you get money expenses is the way that you spend the
money and then your equity being your overall worth so a software or a system
that tracks all of this and an accounting system has three primary
aspects to it or three basic functions the first is to set up accounts and
we're going to take a look at each one of these here in just a second
but at a high level the accounts that you set up are like line item categories
to represent those five different areas okay we're gonna take a look at that
here in a second so you set up your accounts
and once you have your account set up or created you can use them when recording
transactions and a transaction is a movement of money somehow through your
accounting system so either getting money spending money transferring money
paying bills receiving invoices all that kind of stuff are all examples of
transactions that you would enter and then lastly once you have your accounts
created and your transactions entered you can pull a report or series of
reports to basically answer questions like how much money do I have how much
money have I made how much money do I have set aside for my funds reporting is
kind of what everything boils down to in an accounting system so let's take a
look at accounts here first so accounts again is the first aspect in any
accounting system and that's to create a line item or a category for each of the
five different areas of your accounting system so those five areas assets
liabilities equity income and expense and each category or each type of
account has its own kind of thousands range that the account numbers are
typically created in so for assets they're typically created in the 1000
liabilities are two thousands equities three thousands income four thousand and
expenses are five thousands and above now the reason for this is really to
just keep everything kind of consistent and aboveboard so when you go to any
organization really and take a look at their financial statements they will
most likely have a very similarly kind of looking chart of accounts with these
thousands ranges so it's a lot easier to stay consistent with with other
organizations this way so let's take a look at assets first so assets again are
numbered in the 1000 range in any account that you set up is going to have
a number and a name so here's my assets so again assets are money that you own
or possessions that you have as an individual we're going to or an
organization whatever you're accounting for
so you would give the account a number like 1000 and then you would have a
little dash or a colon or something and then have a name that is descriptive of
what the account is representing so for instance the money in my checking
account okay that's asset that's money that I
have so I'm going to create an account to track that then I'm going to call it
1000 – checking okay same thing with my savings accounts 1,001 – savings so
going forward these accounts would be used to represent those balances in my
bank accounts other types of assets that you can have is a invoices receivable or
accounts receivable which is money that is owed to you but you just haven't
received yet you can also have possessions like inventory or fixed
assets as well as a land or buildings so for any possession that you as an
organization own and need to report you would create an asset account for that
like so okay the next is liabilities and liabilities again is any money that you
owe or debt and those are going to be numbered in the 2000s range so you can
see here I have accounts created with two thousand twenty one hundred twenty
two hundred and then – and then a name that is descriptive of what the account
is representing so like the earlier example used I had a school loan you
know balance debt I would create any liability account to represent that
money that I owe somebody else so I'd give it a number in the 2000s range and
then call it student loan debt or whatever so here I have a couple
examples that counts payable which is you know short term money that you owe
somebody else your credit card balance your property mortgage your you know
your outstanding the money that you owe on a building your vehicle loan payroll
taxes again all money that you owe someone else or some other entity but
just haven't paid yet would be considered a liability okay your equity
is in the 3,000 s range now this differs quite a bit for churches and nonprofits
so with a business equity can be a number of things it can be retained
earnings you can be stockholders equity it could be stock value it can be a lot
of things but with nonprofits what I mean it can get pretty detailed as
well but as a kind of a high level overview your funds are going to be
created as equity accounts in your accounting system so like I used earlier
the the general missions and building fund I'll say I also have a special
projects fund so again these are areas within my organization that need to be
tracked separately and they have their own kind of residual value they have
their own balances their own income and expenses so there are like completely
separate entities within my organization so I would create an equity account to
represent their balance and that would be three thousand something so three
thousand thirty one hundred thirty two hundred and then general fund the
mission's fund building fund special projects fund and these accounts through
this through the use of transactions and keeping everything kind of in line would
track my overall balance for my fund that I have created okay next we have
income and income and expenses which is next are kind of the there the more the
easier accounts to kind of think of and track and explain because these are the
ones you're going to be using on a more daily basis so income is numbered in the
for thousands range and income is again any way that you receive money so not
any person that gives you money or anything that gives you money or any
place that gives you money this is anyway any avenue of money flowing into
your organization so you can see how absolutely excuse me some examples I
have four thousand contributions income so any money that I received via
contributions I would use this income account
same with designated donations anything that's kind of being tucked away for
whatever purpose I could use that pledge income grant income sales revenue any
again any way that you receive money you're going to want to create an income
account for it with a number in the 4000s range and a name that is
descriptive of the way that you're receiving the my
and then lastly here we have expenses and expenses are in the 5,000 plus range
and the reason for the plus is well because it's last and so you can do
whatever you want with it but really you have more expenses than you do anything
else most often so expenses are ways that you spend money again not places or
people that you pay but ways that you spend money so salary expenses rent or
mortgage office supplies meals and entertainment fundraiser supplies
utilities you know equipment you know anything that you purchase any way that
you want to spend money would be an expense account again with a kind of
5,000 plus range number and then a name that is descriptive of the way that
you're spending money so at the end of the day you have all five different
types of accounts represented with their respective accounts so assets
liabilities equity income and expense and the total list here all of these
accounts make what's called your chart of accounts you may have heard this
before and a chart of accounts is really just it's a fancy way to say to your
listing of accounts for your organization so when someone says you
know hey on your chart of accounts do you have a category for you know this
fund you can take a look at it tell them yes or no so that would be your chart of
accounts okay so in an accounting system we had those three areas accounts
transactions reports so this is accounts now what you do is take those accounts
and you enter transactions and a transaction again is any kind of
movement of money within or through your organization so this can be things like
items purchased so expenses that you have made and now you've gained items
revenue so you sold something and you made a buck off of it that's revenue
donations another way of income debt paid which would be kind of an expense
but also kind of a liability movement as well bank transfers so not income and
not expense but just moving you know money from my checking to my savings
account that is still regarded as a transaction invoice is sent so if you're
you know writing up an invoice to send to a customer to say you now owe me this
amount of that is income and assets and a couple
other things at play and then fund transfers moving money kind of changing
hands so if I was gonna not you know not a bank transfer but you know if I have
within my bank if I have five thousand dollars tucked away for my admissions
fund but I want to transfer some of that back to my general fund that is a fund
transfer so you can kind of change hands move money around and that is also
considered a transaction now transactions is it's a very deep topic
and this is really where the the wheels come off for a lot of people and the
reason being is because it is so broad I mean these are only seven examples of
transactions but this goes into a billion other things so what I do
typically here is pause and kind of push this off to the side and say if you want
more information on how to enter transactions what the difference between
single and double entry accounting is as well as how to debits and credits play
into the whole mix not debit credit cards but debits and credits in an
accounting system that is something that we would be more than happy to provide
but for today's purposes because that we can kind of follow the rabbit on that
for a while I'll pause on it if you have any questions let me know but just keep
in mind that a transaction is a again a movement of money in or within your
organization that uses your accounts to kind of track balances so lastly we have
reports and a report again is kind of the answer to a question like how much
money do you have how much money have you earned or spent within a given time
frame or how much money is set aside for your funds people can also ask you or
you might ask yourself how much money have we spent on office supplies in the
past six months or how much money have we gotten in donations versus last month
you know this month versus last month and the month before or even the year
before all of those questions are answered by reports okay and with
nonprofits there's kind of three primary reports that IRS has has deemed and the
first one here statement of financial position
is the first one we're gonna take a look at and that's more commonly regarded as
what's called a balance sheet you also have the statement of activities which
is more commonly known as the income statement and then you have a more kind
of specific report that is unique to fund accounting called the statement of
functional expenses but let's take a look at the balance sheet first so the
balance sheet shows what's called the accounting equation which is essentially
your assets equaling your liabilities plus your equity an easier way to
describe this is your assets minus the money that you owe equals your overall
worth so remember the the previous example earlier on where I had ten
thousand two hundred dollars but then so that was my asset that's money than I
had but then I owed money for five thousand
so that means my overall equity was five thousand two hundred dollars so here's
another example so all my assets here on the left hand side I've got cash in my
checking account accounts receivable and grants all of that equaling $19,000 okay
total assets and then to the right is the other half
so my liabilities I owe ten thousand two hundred dollars and then I have a loan
for five thousand dollars as well so that means my overall equity is three
thousand eight hundred dollars which is totaling nineteen thousand as well so
whether it's assets equaling liabilities plus equity or assets minus liabilities
equal equity both of those accounting situations work it's more commonly known
as the assets equal liabilities plus equity but again the math is the same so
it doesn't matter so that is your balance sheet now the balance sheet and
the next one the income statement are the two primary reports that you're
going to want to generate for your board and for anybody that kind of wants to
know the financial position of your organization and secondly here the
income statement the income statement shows the profitability of your
organization within a given time frame and this is a different kind of equation
but it's your income minus your expense equals what's called your net income so
the money that you've gained minus the money that you've spent is your overall
profit or loss for the period of time that you're reporting
okay so here's an example the on the left hand side is just a really big
picture and then on the right is the actual sample here so I've got my income
I've got cash donations for ten thousand I've got grant income for seven thousand
so I have a total income for whatever time range that is of seventeen thousand
dollars below that I'm gonna list my expenses so in my expenses as I've paid
rent for four thousand payroll for 8500 utilities for eight hundred office
supplies for four so my total expense for this time period is thirteen
thousand seven hundred dollars so income minus expense seventeen minus thirteen
thousand and seven hundred dollars equals a net income or profit of three
thousand three hundred dollars for the time period okay so that's your income
statement so balance sheet shows your kind of snapshot of here's how much
money I have oh and by overall worth the income
statement shows kind of how you got there but within a certain time frame so
how much money have I received and spent in the past you know a month or year
whatever you want to report the last report here I don't have a real good
example but the statement of functional expenses shows your organization's
expenses broken down per fund and category so for instance you would have
a let's say office supplies or I guess we'll just run with the administrative
expenses so let's say I have an administrative expenses account okay
that's one of my accounts that I track I'm spending money using this account
this report would show not only how much money have I spent with this account
overall but how much of that was for fun a fun be fun to see so again not just
what's your total expense but what's your total expense in detail broken down
per fund that you have created so that is the statement of functional expenses
so recap what have we learned today well we were gonna answer three questions the
first one was what is accounting and accounting is keeping track of your
stuff so the money that you own oh spend receive and your overall worth all of
that boils down into the process or practice of what's called accounting
fund accounting is a division of accounting it's a further kind of
classification that basically means you're tracking not only those five
different areas but those five different areas for each fund that you have as an
organization which again a fund is just kind of it's a distribution it's a it's
a it's a it's a division within your organization that has its own balance
its own income its own expense it's got its own kind of operation going
and then lastly how do I keep track of my organization's finances so if you
need to track accounting and specifically fund accounting you're
gonna want to do so through an accounting system which would be used
for your organization and in an accounting system you have three kind of
primary areas which is to set up a chart of accounts and then to use those
accounts in transactions which will then bleed into your reports which are
answers to questions that either yourself or people will ask of you that
you can generate based on the other information that you've entered in your
accounting system okay so now it's time for my quick and shameless plug so again
my name is Alex and I'm the support guy here at appleís along with our team of
support representatives and what we do on a daily basis is help people get set
up with atlas software now appala software is an online company that
provides a couple of different products the first is accounting so all the stuff
we just learned we have an accounting system online in place for you that
tracks the fund accounting for your organization and we can teach you how to
use it with no cost to you well the software cost the support is not doesn't
cost you anything that's what I meant so we have accounting and then we also have
donations which allows you to track the money that you've received through
donations but also kind of further track your donors how much they've given you
can also donate online to you via your website and then you can generate
contribution statements for them at the end of the year we also have efiling
capability so if you are a non-profit that needs to file the 990 series either
the form 990-n or the 990-ez we can e-file that for you to the IRS
and we also have over and oversight is a tool that you can use
if you are a or a individual or a business that has to keep the books for
multiple organizations so we have a number of clients that use us with
oversight and they oversee multiple organizations for either financial
accuracy or maybe they're providing a service like a CPA or a bookkeeping
company to have access to multiple accounts but all kind of within the same
one login so it's oversight and then lastly we will be coming out here pretty
soon with a another product called donor relations which will allow you to
further keep tabs on your donors so you can link family to one another so if
Alex and Beth have both donated to me to the organization during the year instead
of them receiving a you know separate giving statement you can combine them
report them together you can also link different family members but the biggest
functionality that's coming with this is being able to email from the system so
if you're familiar with a Constant Contact or a MailChimp type program to
be able to send promotional or campaign emails that is what we're working on
right now so the benefit of all this now all of
these products can be found elsewhere but to have all of them within one
simple to use system that all is integrated with with itself so again the
donations that you enter will go into accounting and then the donors that you
just recorded can get an email from donor relations and you can e-file all
what that stuff is all wrapped up into one system for you which is known as
Aplos so all the products can be used independently but together is where
they really start to shine so if you're curious if you'd like to start a 15-day
free trial we have that available for you there's no commitment needed no
credit card needs to be entered or anything like that all you do is click
that blue button on our website that will start you with a 15-day free trial
that you can start any one of our products and give that a shot and again
all of our support is free and we'd be more than happy to answer any questions
or help you get set up in our software