Fund accounting for churches, explained
ChurchGeniusPro GuidesUpdated 6 min read
Fund accounting tracks money by the purpose it was given for, not just in one pool. Under current US accounting standards, a church’s net assets fall into two groups: with donor restrictions and without donor restrictions. Here is how that works, with examples you can apply to your own funds.
General information based on the official sources listed below, reviewed October 11, 2026. It is not tax, legal, or accounting advice — rules change, so confirm your church’s situation with a qualified professional.
Why churches need fund accounting
Much of a church’s income arrives with a purpose attached: the building fund, missions, benevolence, a youth trip. Donors expect that money to be used as they asked, and boards need to report what was given, spent, and still held for each purpose. A single bank balance cannot answer those questions; fund accounting can.
The two classes of net assets
The Financial Accounting Standards Board’s Accounting Standards Update 2016-14 simplified not-for-profit reporting to two classes of net assets: net assets with donor restrictions, and net assets without donor restrictions. These replaced the earlier three classes — unrestricted, temporarily restricted, and permanently restricted.
The update took effect for annual financial statements for fiscal years beginning after December 15, 2017, so it is the standard today for organizations that prepare financial statements under US generally accepted accounting principles (GAAP).
What counts as a donor restriction
A donor restriction is a stipulation by the donor that limits how a gift may be used more narrowly than the church’s general purposes. Restrictions are usually about purpose (“for the roof”) or time (“to be used next year”), and some are perpetual, such as an endowment whose principal must be kept.
A restriction expires when the stated time has passed, when the stated purpose has been fulfilled, or both. At that point the amount is reclassified from “with donor restrictions” to “without donor restrictions.”
Board-designated funds are not donor-restricted
When your board sets money aside — a reserve for repairs, say — that is a board designation, not a donor restriction. Under ASU 2016-14, board-designated amounts are part of net assets without donor restrictions, because the board can change its own decision. Financial statements prepared under GAAP disclose the amounts and purposes of board designations.
Examples
How common church gifts are classified:
- A member’s Sunday offering to the general fund: without donor restrictions.
- A gift a donor designates for the building fund: with donor restrictions (purpose) until it is spent on the building.
- A gift a donor gives for next year’s missions trip: with donor restrictions (purpose and time).
- The board moves $10,000 of general funds into a roof reserve: without donor restrictions (board-designated).
- An endowment gift whose principal must be kept forever: with donor restrictions (perpetual).
Do churches have to file Form 990 or follow GAAP?
IRS Publication 1828 lists churches among the organizations that are not required to file Form 990, 990-EZ, or 990-N. A church may still need to file Form 990-T if it has $1,000 or more of gross unrelated business income. The IRS does require churches to keep books and records, but it sets no specific format for them.
Whether your church needs GAAP-basis financial statements usually depends on who asks for them — a lender, an auditor, or your denomination, for example. Ask your accountant what applies to you.
Setting up funds in practice
Start with a general fund for unrestricted giving, then create a fund for each purpose donors actually give to. Record every gift to the right fund at the time it is received, track spending against each fund, and review restricted balances before each board meeting so released restrictions are reclassified.
How ChurchGeniusPro helps
In ChurchGeniusPro, every income entry is recorded to a fund and subcategory with its donor and date, online gifts are recorded automatically, and pledge campaigns credit gifts to the campaign’s fund. Fund-based income and expense reports show what each fund received and spent.