Tithe and Allocated Function Accounting

Danny Orillosa
Mack Tennyson

The SDA Church believes in the sacredness of tithes. To ensure the

correct use of tithes, policies have been established to stipulate the
acceptable uses of tithes at the various level of the Church structure.
These policies are clearly described in the SDA Accounting Manual. The
SunPlus Accounting system has been designed to implement the
Church’s policies regarding the use of tithes.

In addition Boards will allocate resources to specific purposes. This

presents an accounting problem similar to Tithe Accounting. This
document shows the SunPlus integrated solution for insuring Tithe and
Allocated resources are properly spent.

Tithe

“SDA AM 1702.04 Permissible Uses of Tithe - Conferences typically

receive many requests for appropriations and expenditures for various
purposes. It is important to know whether tithe can be used for any
given disbursement.”

The following partial list reflects the current understanding as to

permissible and non-permissible expenditures from tithe, according to
GCWP V 15 15:

Permissible Expenditures from Tithe:

 Expenditures relating to Pastors, Evangelists, Ministers

 Expenditures for World Missions through tithe sharing
 Expenditures relating to soul-winning support personnel
 Expenditures to cover Conference/Mission/Field operating
expenses
 Expenditures relating to other employees holding ministerial
credentials/licenses
 Expenditures relating to the Literature Evangelist's Benefit Fund
 Subsidies for specific activities, such as youth camp and camp
meetings
 Expenditures for Evangelistic and Conference office equipment
 Expenditures relating to Bible/Religion teachers and support
personnel in schools:
o Elementary church schools - limited to a maximum of 30
percent (30%) of total salaries and allowances of
principals and teachers.
o Secondary church schools - limited to a maximum of the
total salaries and allowances of Bible teachers,
residence hall deans, and principals.
 o Church-operated colleges and universities - limited to a
maximum of the total cost of Bible or Religion
departments, deans of students, residence hall deans,
and presidents.

Non-Permissible Expenditures from Tithe:

 Expenditures relating to the maintenance and other operating

expenses of local churches and schools
 Expenditures relating to local church and school employees
(secretaries, janitors, etc.)
 Capital expenditures to purchase or construct buildings and
facilities
 Expenditures for the purchase or maintenance of equipment -
except evangelistic and conference office equipment

Allocated Resources

It is fairly easy, within one year, to receive tithe and spend tithe
properly. It is slightly more complicated when the organization holds
tithe funds at the end of the year and has to preserve the tithe nature of
the funds when it is showing its resources on the financial statements.

In addition to handling tithe properly, church accounting has a similar

parallel problem with the accounting for allocated resources. God set
apart Tithe resources for special uses such as pastor salaries. Likewise,
organizational boards set apart resources for special uses such as
evangelism. . The resources set apart by the board (and some
donations) are called allocated.

There are substantial differences between God and Organizational

Boards. However, the accounting challenge created by both God and
the Board by them specifying how money is to be spent is the same.
The two perspectives overlap each other. These two perspectives
create at least four pots of resources illustrated thusly:

Unallocated Allocated
Tithe A D
NonTithe B C

Net Assets on the Statement of Financial Position

Church accounting keeps track of all of this in the Net Assets section of
the Statement of Financial Position. Reflect for a moment about that
sentence. The top part of the Statement of Financial position has the
money, receivables, investments and fixed assets of the organization.
The bottom part has the claims against these resources. The creditor
claims are called liabilities. And what is remains after the creditors have
asserted their claims are called net assets. These net assets are the
resources that remain for the church to carry out its mission. So if it has
a million in assets and two hundred thousand in liabilities it has eight
hundred thousand left over in Net Assets for carrying out its mission.

However this future spending represented by net assets is not available

to be spent in just any sort of way. For starters, God has designated
these remaining net assets to be spent in a specific way if they came
from Tithe. So these net assets needs to be tracked as to what amount
is tithe and what amount is nontithe. Since something is either tithe or
nontithe, the total of these two types of net assets equals the total of
net assets.

Likewise the future spending represented by net assets is not available

to be spent in just any sort of way: The board has allocated some of the
net assets/future spending to be spent in a certain fashion. So net
assets need to be tracked by what has been allocated to specific
purposes. Of course, anything left over after consideration of the
allocated resources would be unallocated resources. Since Net Assets
have either been allocated or not, the total of allocated and unallocated
net assets equals net assets. This goes without saying.

We have the same net asset resources grouped first by tithe and
nontithe and also grouped by allocated and nonallocated. Wild!

Take another look at the table above but with numbers. All of the
numbers are net assets. Total net assets equal to 1,000,000.

Unallocated Allocated Total

Tithe (A)200,000 (D)600,000 800,000
NonTithe (B)100,000 (C)100,000 200,000
Total 300,000 700,000 1,000,000

With this background, consider the net asset section of the balance
sheet. Here is a picture of it from the SDA Accounting Manual:

Notice that the Total Net Assets in the Operating Fund is 14,303,420.
The Plant Fund is not relevant to this discussion.

Here is a picture of part of the “Statement of Fund Balance” from the

Accounting Manual. The four parts are labeled.
Nominal Functions

The above discussion about Tithe/Nontithe and Allocated/ Unallocated

dealt with requirements of Church GAAP as outlined in the SDA
Accounting Manual. The SunPlus world has livened things up some by
adding the concept of nominal function.

Nominal functions were created to provide a way to track departmental

spending. Some people prefer to call it cost center spending since there
is not a one-to-one relationship between departments and cost centers.
As a matter of administrative convenience, one department may have
two cost centers. The University library may have a cost center that is
library spending on the main campus and another cost center for the
library at the downtown campus. There may be cost centers that are
not departments. For example, administrators may balk at calling the
lady in housekeeping a department, but financially it may be useful to
call housekeeping a cost center. Or there may be a Dorcas cost center
but nowhere in the building can you find a Dorcas department. Contra-
wise you may have a department that is not a cost center. An
organization may have what they call the housekeeping department,
with a department head. However, it may feel that it is unnecessary to
actually separate out the cost from the general administrative cost. So
while saying Nominal Functions keep track of departmental spending is
perhaps clearer, it is more precise to say Nominal Functions keep track
of cost centers.

The term “Nominal Function” borrows from terminology used in regular

accounting. Recall from your Principle of Accounting days that Balance
Sheet accounts were called real or permanent accounts. Then recall
 that Income Statement accounts were called Nominal or Temporary
accounts. The difference between the two was that the Balance Sheet
(e.g. real, permanent) accounts measured real things: real money,
inventory, debts, owner’s claims. Income Statement (e.g. nominal,
temporary) accounts measured non-real things like revenue and
expenses. These were things that have no substantive reality but we
accountants wanted to measure these things about the organization.

One important accounting distinction you learned about real and

nominal accounts is that nominal accounts had to be closed. The
nominal accounts temporarily measured the details of changes in the
owner’s capital accounts. But after they had served their measurement
purpose they were closed through a process of moving their temporarily
measured values into the owner’s real accounts.

In SunPlus we measure changes in Net Assets in the Income Statement

accounts and then we close the Net Income into Net Assets. However,
we do this automatically without accountant involvements in the
construction of the financial statements.

Likewise we do a similar measurement with the functions. We

temporarily measure changes in cost center activity using the nominal
functions. This gives us access to the revenue and expense of each cost
center. But after it has served this temporary purpose for the year,
SunPlus automatically closes the nominal functions into regular Net
Asset functions in the construction of the Balance Sheet.

This means that that instead of posting entries directly to the

Unallocated Tithe and Unallocated Non-tithe functions, we post them to
the nominal functions first so the cost center information can be
captured. Then the cost centers’ nominal functions are closed by the
construction of the financial statements into their real Unallocated Tithe
and Unallocated Non-tithe functions.

So the rule is that you do not post entries directly to the Unallocated
Tithe and Unallocated Non-tithe function. Instead post them to the
proper nominal function. However, the following are exceptions to this
rule:

Posting Principles and Statements

Entries that can be directly tagged with UFTF and UFNT Functions:

 Tithe from Lower Organizations

 % of Tithe to Higher Organizations

 Tithe and Non-tithe Appropriations Received

 Tithe and Non-tithe Appropriations Made

  Tithe Transfers

Use the following Rules of Thumb for Unallocated Fund Tithe Fund
(UFTF) and Unallocated Fund Non Tithe (UFNT) transaction exceptions:

 Tithe income and Tithe Percentage are tagged directly with

UFTF.

 Appropriations Received and Made are tagged directly with

either UFTF or UFNT.

 Transfer transactions can be tagged directly with UFTF and

UFNT.

 No other revenue or expenses can be tagged directly with UFTF

or UFNT.

 Tag any revenue or expense for an allocated functions with the

allocated function’s tag.

 Any expenses incurred in the organization’s operations that

cannot be distributed to departments or cost centers should
be tagged with the SUINHOU01 -- In-House Operations
Function.

 Any expenses for other institutions for which the organization

is responsible to pay must tagged with the SUGENER01 --
General Institutional Function.

Financial Statements

The Tithe Function Statement Presentation should look like this:

REVENUE:
Tithe from Lower Organizations XXXXX
Less: Tithe % to Higher Organizations (XXXXX)
Net Tithe Income XXXXXX

APPROPRIATIONS:
Appropriation Received XXXXXX
Less: Appropriations Made (XXXXXX)
Net Appropriation Retained XXXXXX
Net Revenue (Loss) Before Transfer XXXXXX

TRANSFERS:
Transfer In XXXXX
Transfer Out (XXXXX)
Net Transfer In (Loss) XXXXXX
Net Revenue (Loss) to date XXXXXX
Add: Balance at year start XXXXXX
TITHE FUNCTION BALANCE XXXXXX