Church Fund Accounting: Why QuickBooks Isn't Enough

QuickBooks is the most popular accounting software in the world. It's also one of the worst choices for church finances. Here's why — and what to use instead.

The Problem With QuickBooks for Churches

QuickBooks was designed for businesses that track revenue and expenses to calculate profit. Churches don't have profit. Churches have funds — restricted pools of money designated for specific purposes by donors, the congregation, or the board.

When a member gives $500 to the building fund, that money is restricted. It can only be used for the building project. It cannot be used to pay the electric bill, buy Sunday school supplies, or cover the pastor's salary. This is a legal obligation, not just good practice.

QuickBooks has no concept of restricted funds. Here's what churches typically do as a workaround:

The "Classes" Workaround

QuickBooks lets you create "classes" to categorize transactions. Many churches create classes like "General Fund," "Building Fund," and "Missions Fund." This seems to work — until it doesn't:

• Classes don't enforce restrictions. Nothing prevents you from spending building fund money on operations. QuickBooks won't warn you, flag it, or stop it.
• Classes don't maintain separate balances. You can't look at a single screen and see "Building Fund: $45,000" and "Missions Fund: $12,000." You have to run filtered reports and manually calculate balances.
• Classes don't generate fund-level statements. You can't produce a Statement of Activities for just the building fund. You get one combined report and have to manually separate it.
• Classes break with complexity. When you have 10+ funds, the class system becomes unmanageable. Cross-fund transfers, interfund loans, and fund-level balance sheets are impossible.

The "Separate Company Files" Workaround

Some churches create a separate QuickBooks company file for each fund. This solves the isolation problem but creates new ones:

• You can't see your church's total financial picture without manually combining files
• Interfund transfers require duplicate entries in both files
• You need separate bank reconciliations for each file
• Reporting across funds requires exporting to Excel and combining manually

No Nonprofit Financial Statements

Churches need three specific financial statements:

1. Statement of Financial Position — Shows assets, liabilities, and net assets categorized as unrestricted, temporarily restricted, and permanently restricted
2. Statement of Activities — Shows revenue and expenses by fund with net asset changes
3. Statement of Functional Expenses — Breaks down expenses by function (program, management, fundraising) and by nature (salaries, rent, supplies)

QuickBooks generates a Profit & Loss statement and a Balance Sheet — business reports that don't match what your board, auditor, or the IRS expects from a nonprofit.

What True Fund Accounting Looks Like

True fund accounting software — like Alignmint — is built from the ground up for organizations that manage restricted funds. Here's how it works:

Every Transaction Belongs to a Fund

When you record a donation, expense, or transfer, you assign it to a specific fund. The system maintains separate balances for each fund automatically. You always know exactly how much is in the building fund, the missions fund, and the general fund — in real time.

Restricted Fund Rules Are Enforced

If your building fund has $45,000 and someone tries to record a $50,000 expense against it, the system flags it. You can't accidentally overspend a restricted fund. This protects your church from compliance issues and donor trust violations.

Fund-Level Financial Statements

Generate a Statement of Activities for any individual fund or for all funds combined. See exactly how much came into the missions fund this quarter, how much was spent, and what the ending balance is. No manual filtering, no Excel workarounds.

One Chart of Accounts, Many Funds

Alignmint uses a pre-built chart of accounts mapped to IRS Form 990 line items. Every account works across all funds. This means your chart of accounts stays clean and manageable even as you add more funds.

Interfund Transfers Done Right

When you transfer money from the general fund to the building fund, Alignmint creates the proper journal entries in both funds automatically. The general fund shows a transfer out, the building fund shows a transfer in, and both fund balances update in real time.

Real-World Example

Scenario: Your church receives $10,000 in Sunday offerings. $7,000 is general tithes (unrestricted), $2,000 is designated for the building fund (restricted), and $1,000 is designated for missions (restricted).

In QuickBooks:

• Record $10,000 as income
• Tag $7,000 to "General" class, $2,000 to "Building" class, $1,000 to "Missions" class
• Hope nobody accidentally spends building fund money on something else
• Manually calculate fund balances by running class-filtered reports

In Alignmint:

• Record the deposit and designate each portion to its fund
• The system automatically creates journal entries: debit bank account $10,000, credit tithe revenue (General Fund) $7,000, credit building fund revenue $2,000, credit missions revenue $1,000
• Fund balances update instantly on the dashboard
• Restricted fund rules prevent misuse

Making the Switch

If your church is currently using QuickBooks, switching to proper fund accounting software doesn't have to be painful:

1. Export your QuickBooks data — Chart of accounts, vendor list, and recent transactions
2. Set up your funds in Alignmint — Create funds for each restricted purpose
3. Enter opening balances — Set each fund's starting balance as of your switch date
4. Start recording new transactions — Everything going forward uses proper fund accounting

Most churches complete the switch in a few hours. And with Alignmint's Starter plan being free for churches up to $100K in annual giving, there's no financial risk in trying it.

Ready to upgrade from QuickBooks? Schedule Your Free Setup or learn more about church accounting.

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• Fund Accounting for Nonprofits: A Complete Primer — Understanding fund accounting principles
• Alignmint vs ChurchTrac — Full feature comparison for churches