Cost accounting is the practice of determining how to divide an expense between various budget line accounts. There are some expenses which are easy to cost account because it can be tracked without much effort:
- Postage
- Photocopies
- Special Office Supplies
There are some that are not easy because the calculations are quite difficult and often require a judgment call:
- Electricity
- Building Maintenance
The main question is, What Added Value is there to Cost Accounting?
In most instances in church accounting, there is almost no value added to do cost accounting. When asked to do cost accounting, my question is “Why? What are you going to do with the info?” For small to mid-sized churches, cost accounting is rarely recommended. If a ministry has a large mailing or printing a lot for an event, that can be guesstimated and charged to that account if necessary. For larger churches, I recommend having an office expense account for most items (supplies, printing, etc.) and then keep track of special event expenses so the finance office can charge them appropriately.
Doing a lot of cost accounting only occasionally helps a church with its financial decision-making but usually it is not worth the day-in and day-out effort. In my opinion, it detracts from the routine ministry of the church. The ONLY exception is for special events and activities which you do need to track the expenses to know if this was financially worth it, if it should be done again, and if it should be done differently next time.
Before you enact across the board cost accounting in your church, please ask yourself if there is significant value added to doing it for everything, every day.
Lead On!