A church income and expense statement is a periodic report that lists every source of revenue on top, every category of expense below, and the resulting surplus or deficit at the bottom, with donor-restricted money kept in its own column so leadership can see what is truly available to spend. Get the categories right and the report tells you what happened; lump things together and it hides the same problems it is supposed to surface.
How the Statement Is Laid Out
The logic mirrors any organization’s profit-and-loss report, just with different labels. Revenue subcategories sit at the top, expense subcategories below, and the difference between the two is the bottom line for the period. Most churches run the report monthly for the board and annually for the congregation.
The single most important structural choice is to split the statement into two columns: funds without donor restrictions (general operating money the church can spend as it chooses) and funds with donor restrictions (gifts earmarked by the giver for a specific purpose). Leadership needs to see at a glance how much flexibility they actually have. Merging the two columns is the most common mistake church treasurers make, and the confusion compounds month after month.
Revenue Categories
Churches are tax-exempt under federal law and generally pay no federal income tax on contributions and other qualifying revenue.1Office of the Law Revision Counsel. 26 U.S. Code 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. That does not remove the need to categorize income carefully. The top of the statement should carry these line items:
- Tithes and general offerings. The largest category for most churches. Unrestricted contributions that can fund any legitimate purpose.
- Designated or restricted gifts. Donations earmarked for a specific use like a building fund, benevolence fund, or mission trip. Track these in the restricted column, not with general offerings.
- Fundraiser proceeds. Revenue from events such as dinners, auctions, or sales. Record the gross amount; put the associated costs in the expense section rather than netting them.
- Rental income. Payments from outside groups that use the facility for meetings, events, or programs.
- Investment and interest income. Earnings on savings accounts, certificates of deposit, or endowment holdings.
- Grants. Awards from private foundations or community organizations. These are almost always restricted, and the grant agreement usually spells out both the permitted use and the reporting requirements.
One category that catches churches off guard is unrelated business income. If the church regularly earns money from an activity not substantially related to its religious mission (renting parking lots on weekdays, running a bookstore open to the public), that income can trigger unrelated business income tax even though the church itself is tax-exempt. When these activities produce more than $1,000 in gross income annually, the church must file Form 990-T. Give this revenue its own line so it does not disappear into general offerings.
Expense Categories
Group expenses into functional categories that mirror how the board actually decides what to spend money on:
- Personnel compensation. Salaries and wages for clergy and staff, payroll taxes, health insurance premiums, and retirement contributions. Usually the largest single category.
- Housing allowance. The portion of a minister’s compensation designated as housing. This needs its own line for reasons covered in the next section.
- Facilities. Mortgage or rent, property insurance, utilities, cleaning, and building maintenance and repairs.
- Ministry programs. Curriculum, worship supplies, music licensing, youth and children’s program costs, and event expenses.
- Missions and outreach. Support for missionaries, benevolence payments, food pantry supplies, and community service costs.
- Administrative. Office supplies, postage, software subscriptions, phone and internet, accounting and legal fees, general liability insurance.
- Online donation processing fees. Charges from Stripe, PayPal, or church-specific giving platforms. Give these their own line rather than burying them in administrative costs.
Separating personnel from facilities from ministry programs shows the board how much of every dollar supports infrastructure versus how much reaches people directly. That ratio is one of the first things congregants ask about, and a well-structured statement answers the question without an explanation attached.
Recording the Clergy Housing Allowance
Federal tax law lets a minister of the gospel exclude from gross income either the rental value of a home furnished by the church or a housing allowance paid as part of compensation, as long as the amount does not exceed the fair rental value of the home including furnishings and utilities.2Office of the Law Revision Counsel. 26 U.S. Code 107 – Rental Value of Parsonages The exclusion also cannot exceed what the minister actually spends on housing during the tax year.
For the exclusion to hold up, the allowance has to be officially designated in advance of payment through a written board resolution or compensation agreement that states the dollar amount and effective date. On the income and expense statement, the housing allowance should appear as a separate expense line under personnel compensation, not merged into the minister’s salary. That separation makes it easy to verify that what was paid matches what the board approved. On the minister’s Form W-2, the church reports the housing allowance in Box 14 rather than in Box 1 taxable wages.3Internal Revenue Service. Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers
Online Donations and Processing Fees
When a donor gives $100 through an online platform and the processor takes a $2.90 fee, the church receives $97.10 in its bank account. Book the full $100 as donation revenue and record the $2.90 as a separate processing fee expense. Do not record the net deposit as the donation. That approach understates both revenue and expenses, and it creates problems with donor acknowledgment letters, which should always reflect the full amount the donor gave.
Most processors deduct fees before depositing, so the bank statement will show only the net figure. Pull a monthly report from the giving platform that shows gross donations and total fees, then post a journal entry that records the difference. The fee is the church’s cost of doing business.
Payroll: Ministers Versus Other Staff
Payroll works differently for ordained ministers than for other employees, and the difference shows up on the expense side of the statement.
Non-ordained employees (office staff, custodians, music directors who are not ordained) are handled like employees at any other organization. The church withholds the employee’s share of Social Security (6.2%) and Medicare (1.45%) and pays a matching employer share. Both the gross wages and the employer’s matching taxes appear as expenses.
Ordained ministers are different. For Social Security and Medicare purposes, they are treated as self-employed regardless of whether the church treats them as employees for income tax purposes. The church does not withhold or pay FICA on a minister’s compensation. The minister pays the full self-employment tax (15.3%) on their own return and can deduct half of it.3Internal Revenue Service. Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers On the church’s statement, clergy compensation therefore appears without a matching employer FICA line, while staff compensation carries one. Keeping the two separate avoids confusion at reconciliation.
Restricted Funds and Release From Restriction
When a donor gives for a stated purpose, the church has a legal obligation to use the money that way. A gift to the building fund cannot quietly cover a payroll shortfall, no matter how tight the month gets. Mixing restricted and unrestricted money on the statement is how churches get into trouble with donors and, in extreme cases, with state attorneys general who oversee charitable organizations.
The two-column layout handles this cleanly. Each restricted purpose (building, missions, benevolence, youth camp) is a sub-line inside the restricted column. When the church spends restricted money on its intended purpose, that spending shows up as a release from restriction, which moves the amount over into the unrestricted expense column. The release mechanism is what keeps both columns balanced and the audit trail readable. Keep every grant agreement filed with the financial records so the treasurer can verify compliance when the statement is prepared.
Internal Controls That Keep the Numbers Trustworthy
A clean-looking statement means nothing if the underlying controls are weak. Almost every church fraud case involves one person who had too much unsupervised access to the money. The rule is simple: no single person should handle the money, record the transactions, and reconcile the accounts.
At minimum, whoever counts the Sunday offering should not also record the deposit in the books. Whoever writes checks should not reconcile the bank statement. And whoever reconciles the accounts should ideally be someone who never touches cash or signs checks, such as a board member or a volunteer from outside the finance team. If the church is small enough that perfect separation is impossible, have a second person review every bank statement and reconciliation before it is filed.
These controls do more than deter theft. They also catch honest mistakes before they compound. A miskeyed deposit that sits undetected for three months is far harder to trace than one caught at the next monthly review. After the statement is drafted, reconcile its ending cash balance against the actual bank balances, and track down any discrepancy before the report leaves the treasurer’s desk.
Source Documents Behind the Statement
Building the statement starts with the paperwork that supports every line. The treasurer needs monthly bank statements from every checking and savings account, transaction reports from online giving platforms, weekly tithe logs from the offering counts, and payroll records including Form W-2 data for employees and Form 1099-NEC records for independent contractors like guest speakers or freelance musicians.4Internal Revenue Service. About Form 1099-NEC, Nonemployee Compensation Interest earned on savings, reimbursement checks received, and any insurance claim payments also need to land in the appropriate revenue line.
Small receipts are where things fall apart. A $40 purchase of supplies for vacation Bible school is easy to forget, and a dozen forgotten receipts a month adds up to a material gap by year-end. Require every person who buys something on the church’s behalf to submit receipts within a set timeframe, and categorize them immediately rather than putting them aside for later.
How Long To Keep the Records
The IRS does not prescribe a single retention period for every type of church document, but it requires exempt organizations to keep records that support the income, expenses, and credits reported on any returns filed.5Internal Revenue Service. EO Operational Requirements – Recordkeeping Requirements for Exempt Organizations As a practical matter, most accountants who work with churches recommend keeping annual financial statements, bank reconciliations, and general ledgers for at least seven years. Payroll records, Form W-2 copies, and Form 1099-NEC copies should be kept for at least four years after the tax becomes due. Documents related to property ownership, loans, and major contracts should be kept permanently.
Do Churches File This Statement With the IRS?
No. Churches are not required to file Form 990, Form 990-EZ, or the electronic postcard Form 990-N with the IRS. Federal law specifically exempts churches, their integrated auxiliaries, and conventions or associations of churches from the annual information return requirement that applies to other tax-exempt organizations.6Office of the Law Revision Counsel. 26 U.S. Code 6033 – Returns by Exempt Organizations The IRS confirms this on its filing guidance page.7Internal Revenue Service. Annual Exempt Organization Return – Who Must File
The exemption does not lift the recordkeeping obligation. The IRS still requires exempt organizations to maintain books and records that document their sources of receipts and expenditures. And a church with more than $1,000 in gross unrelated business income has to file Form 990-T regardless of the general exemption. Some churches voluntarily file Form 990 as a transparency measure, which is permitted. The reason to produce a solid income and expense statement is stewardship and donor trust, not an IRS filing deadline.
Church-affiliated organizations that are not themselves churches, like a separately incorporated school or camp, generally do not qualify for this exemption. Organizations with gross receipts normally at or below $50,000 file the electronic postcard (Form 990-N); those above $50,000 file Form 990-EZ or the full Form 990.8Internal Revenue Service. Annual Electronic Filing Requirement for Small Exempt Organizations – Form 990-N (e-Postcard)