Financial Statements 101

As we head into 2025 and a new financial year for the church, I thought it might be useful to provide a brief overview of the two main financial statements used for reporting by most churches. I know this information may come as a review for many, but the explanations below might be helpful for new board members or members of the congregation who lack an understanding of financial reporting.  

The two most common financial statements used for reporting are: the Income Statement and the Balance Sheet. 

The income statement is an integral part of the church performance reports. While the balance sheet provides a snapshot of a church’s financials as of a particular date, the income statement reports income through a specific period, usually a quarter or a year. The period the income statement covers is indicated in its heading. For example, it could read: “year ended December 31, 2024”, which would be for the entire year 2024, or “three months ended March 31, 2024”, which means the first three months of the calendar year. The report can cover any period desired. Just be clear about what period you are looking at. 

It gives an account of three key items:

• Revenue (typically tithes and offerings for the church)
• Investment income or loss
• Expenses

Total income (revenue plus investment income or loss) minus expenses equals profit. Even though the church is a non-profit organization, looking at profit is helpful so that you know if you are spending more or less than your income. Income statements are also referred to as profit and loss statements. These are the same report. Also, in the non-profit sector, the report may be called a statement of activities.  

The balance sheet refers to a financial statement that reports a company’s assets, liabilities, and shareholder equity at a specific point in time. Assets equal what the church owns, liabilities equal what the church owes, and equity equals assets minus liabilities. Equity is essentially what would remain if the church sold all its assets and paid off all outstanding bills and debt. 

A key difference between the income statement and the balance sheet is the reporting period. Remember the income statement covers a period of time while the balance sheet covers a point in time.  The balance sheet is the value of your church on a specific day.  

It’s best practice to review your income statement and balance sheet on a monthly basis. At a minimum, the reports should be prepared in time for church board meetings in order for your Pastor and board to keep a good pulse on the church’s financial health. 

If you have questions about financial statements or reporting, please contact me for assistance. 

Scott Thorson