Designated and Restricted Funds for Churches
How a Kentucky CPA tracks designated and restricted funds for churches: separate fund balances, spending rules, board designations versus donor restrictions, and reports that show where every dollar stands.
A designated fund is money the church set aside for a purpose. A restricted fund is money a giver set aside for a purpose. The difference matters, because the church can change its own mind but can't change the giver's. I track both kinds separately for the churches I serve, so the building fund, the missions fund, and the benevolence fund each show their own balance every month and nobody spends money that was promised to something else.
Designated versus restricted
When the finance committee votes to set aside $20,000 for a roof, that's a board designation. The committee can later vote to use it for a furnace instead. When a member gives $5,000 and says it's for the roof, that's a donor restriction. The church has to use it for the roof, or go back to the giver. Treating those two the same is the most common mistake I see, and it's usually because the bookkeeping system only has one bucket.
How I track funds
Each fund gets its own balance in the books, with its own income and its own expenses, so a report can show the general fund and every designated fund side by side. Money moves between funds only by a documented decision. Interest earned on a restricted fund stays with that fund. And the monthly report shows the committee exactly how much is truly available for general spending, which is usually less than the bank balance.
That last point is where churches get into trouble. The bank says $80,000. But $30,000 of it belongs to the building fund and $10,000 to missions. The real operating cushion is $40,000, and the report needs to say so plainly.
What the finance committee gets
A one-page fund summary every month: beginning balance, money in, money out, ending balance, for every fund. Plus the general fund budget versus actual and a short note from me on anything that moved. It's the report that makes a committee meeting take twenty minutes instead of two hours.
Chris Bingham, CPA, MBA
Licensed Kentucky CPA. I spent more than twenty years as an accounting manager and controller for coal and manufacturing companies, and I’ve worked in Southeastern Kentucky since 1996. These days I keep the books for churches, nonprofits, coal operators, and small businesses across the region.
What people ask.
If your question isn’t here, call and ask. I’d rather talk it through than have you guess.
Usually, yes. We go back through the records, rebuild each fund's balance from what came in and what went out, and document any gaps the committee has to decide about.
Related pages.
Want to talk it over?
Call, email, or send a note. Tell me a little about your church or business and I'll get back to you.