Financial Statements – Statement of Receipts & Expenses (Part 3)

Part 3: Expenses

Expenses are the longest section of an R&E statement. It is typically divided in ministry departments according to how the church staff and programs are structured. Ideally, this part of the financial statements has an increasing amount of detail and all of these layers are stacked so they create synergy.

  • The top of the pyramid is the mission of the church – the further down you go there is more detail but all that detail must support the mission of the church
  • The next layer consists of the various departments. All of these must be on the critical path of the church’s mission. If there is a department that is not central to the purpose of the church, that section should be eliminated. That could be painful and/or emotional, but that program is using resources (people, time, and money) that should be used for the main thing.
  • The next layer, and usually the final one, is made up of the individual line items that support the ministry (which supports the mission). If there is a line that does not support the programming area or the church’s mission, then than line should be eliminated.
  • For purposes of creating the budget, I recommend that yet another layer of detail be created on a spreadsheet (see sample in Free Resources at This spreadsheet give explicit detail of every expense from every line item. This enables the budget lines to reflect combinations of smaller amounts or similar expense types to form one large line item.

The numbering system in the chart of accounts should have some reason

  • A number system should have five digits at a minimum. Some organizations use a department prefix of two or three digits followed by a four or five digit line item number. This is effective for larger churches. Small and mid-sized churches can use a five digit line item number where the second and third digits specify a ministry department. For instance: missions can be X2XX0, discipleship can be X3XX0, worship is X4XX0, etc.
  • Increase the numbers by 10 or 20 to provide enough space to insert new expense lines as you grow and the church changes. That means the fifth digit is almost always a zero when a chart of accounts is created.
  • The third and fourth digits can specify the same type of expense across ministry area. For instance: continuing ed in missions can be X241X, in discipleship it can be X3410, in worship it can be X4410, etc.

Spending should only be done against line items which have a budget figure

  • Too many times the financial administrator doesn’t know to what line item an expense should be charged so he creates a new line. But there’s no budget for that expense and unbudgeted expenses means that money is being spent which the church didn’t authorize.
  • Put all expenses in budgeted lines. You may need to move the expense to another budget line later through a journal entry. Or, with the authorization of the Finance Committee take an existing budget line and divide it to create two lines with budgets and put this expense in the new line.

As I mentioned in the post on Receipts, income that is received against a specific expense should not be in the revenues section. Instead, there are a couple of ways to show this in the program expense section.

  • Create a line for income in that ministry expense area. Receipts that are posted here will show up as a negative because they are a “negative expense” (which means income). This method clearly shows the receipts and helps with financial transparency.
  • The other way is to net receipts and expenses in the same line so that figure on the published financial statement is a combination of both income and expenses. It is impossible to see from that one number how much was spent or received.

Grouping expenses into one line is sometimes a legal necessity and sometimes common sense and sometimes creates financial flexibility. from members Here are some examples:

  • Personnel classes
    • It used to be common for churches to have line items for each salary and each benefit for each minister. This creates a huge chart of accounts but it also invades personal privacy and thus creates some legal issues of confidentiality. Churches will do much better to create just two classifications:
      • Salaries & Housing
      • Benefits
  • If necessary, salaries can be differentiated between ministerial staff and support staff.
  • If necessary, benefits can be differentiated between Employer FICA, Retirement, Insurance (Health, Dental, and Disability).
  • Instead of keeping track of personnel expenses in a document which is frequently handed out to the entire church, the financial administrator should have a spreadsheet which tracks all personnel expenses by person and by category. Go to Free Resources at to see the Personnel Spreadsheet template which you can adapt to your own church’s needs.
  • Office Operations
    • Unless you have a very large office, it is more effective and efficient to put all your office expenses into one line called Office Operations. This includes items such as copy paper, office supplies, toner, copier expenses, postage, etc. If anyone wants to know how much was spent on one of these items, that information can be obtained by running a vendor report or printing out the general ledger detail for that line. All office expenses are the “cost of doing business” and usually don’t amount to a lot so it makes sense to group them together.
    • Utilities
      • Some churches have line items for each utility. I strongly encourage churches to have one line for utilities and put all expenses into that one line. This may decrease the number of questions from members who may focus on the church’s utility bills and not be as concerned about the main purpose of the church.
      • If anyone wants to see the amount of utilities expenses, give them the utilities spreadsheet (see Utilities Spreadsheet in Free Resources at or run the general ledger detail with all the information. Using the spreadsheet helps the building committee members see the use of various utilities month-by-month and year-by-year.

Putting expenses into broad categories speeds up the process of entering bills to be paid and that can be a big time saver to the finance office.

As with all financial statements, the R&E Statement must provide relevant and timely information which helps the appropriate committees and team make good decisions. If the financial statements are not providing that information, then the statements must be changed so they meet the needs of the committee unless that same info can be obtained elsewhere (such as the utilities spreadsheet).


Lead On!