When we are engaged to work with a church, it is often to help prepare the financials to present to a bank for a loan request. One area that usually needs attention is the fixed asset section. While the guidelines could fill a book, let’s review in summary what is needed.
Under GAAP (generally accepted accounting principles), assets should be listed on the balance sheet at their acquisition (original) cost. This is sometimes referred to as the “book value.” Almost all loan documents require the financials be submitted in accordance to GAAP.
Often, we find that the church has incorrectly adjusted the assets to their current estimated market value. This is little more than a guess as to the current value of the assets. While market value is often more than book value (especially on a building), the banks are aware of this difference, which is why they hire a qualified appraiser to arrive at a correct market value.
The assets are usually separated into the following categories: 1) Land 2) Building and Improvements 3) Furniture and Equipment and 4) Vehicles. While there is some flexibility in what is considered an asset, a common threshold for furniture and equipment is anything with a cost over $500 and a useful life over two years.
Keeping the asset section of the balance sheet updated each year will help comply with the loan documents and make compiling the financial statements a much smoother process.