Depreciation Exp and Ministries   0125-02    ZZall

                                                                               - - - Rejoice in the Lord always ... again I say Rejoice !!! - - -

                        TO: Interested Ministries                                                                                           FROM: Jim Bramer, Retired Auditor-CPA 
                                                                                                                             Rev. 3:21                   FILE: 0125-02/all

                         RE: Ministry Depreciation Matters                                                                         Originated:  November 1997                       

        Below is a hypothetical Online Email thread (THRD) between any one of the following MFTeam members: PAT (Ministry Chief Executive), LEE: (Ministry Volunteer Treasurer), or FRAN: (Ministry Computer Bookkeeper) and   Click here and go to List of threads (THRDs) at


        Pat and Lee are also interested in this whole area of "depreciation", but since it affects me mostly I will interact with you and then take up the whole matter with them.  From your perspective, Jim, give me some information on this topic.

   FR: JIM

     First please Go Here where we have covered a number of "Fixed Asset" topics.  Also, after October 2009, our free eBook speaks to some "Depreciation at Christian Ministries"  matters when you  Click Here.
 In a nutshell, basically my Ministry experience on this topic leads me to the following declarations:

        1> "Depreciation" is a  GAAP required once-a-year accounting process for Land, Building and Equipment (LB&E), or Fixed Assets, and should NOT show up in a Ministry's monthly OPERATIONS.   Please note the distinction made between Internal or Daily  GAAP  and an external or Once a Year/Annual GAAPPlease Go Here for more explanation of a "dormant", once-a-year LB&E set of books that is maintained apart from the "Live", or current, OPERATIONS set of books.
        2> Since it does NOT appear within OPERATIONS, you do NOT budget for "Depreciation".
        3> The OPERATIONS budget SHOULD include areas for Acquisition of certain Equipment and Payment of Installment debt in buying things on time.
        4> "Depreciation" should NOT be confused with any voluntary assessment, or "SetASides", action within your OPERATION'S budget for future LB&E purposes.

                   Personally,  I highly recommend the prudence of a Ministry setting aside money from current income for future LB&E updates or replacements.


        Well, let's see .... these declarations cause me to 'raise my hand for some more help'.   Let's start with your definition of 'Depreciation';   also why do you NOT associate the word  'Expense'   with it? I thought 'Depreciation' was an expense that applied to a ministry just like any regular business.... please explain.


        When you buy most LB&E items, you have used current resources to obtain them (or borrowed in order to buy, etc.).   And the use of such resources will benefit the Ministry for more than one year.  I like to think of "Depreciation" accounting as the allocation method whereby a prepaid LB&E expenditure is charged to the future year in which it is used.
        For example: let's say that the Ministry purchased some LB&E items which originally cost $50,000, and it anticipates it to last 10 years. The $50,000 expenditure is placed on the LB&E set of books as an Asset and then it is "Depreciated" at the rate of $5,000 per year.
        You are correct, both Ministries and Businesses alike have LB&E resources which need to be accounted for in a somewhat uniform manner; yea, both groups need to do things according to 'Hoyle' --- see the (GAAP) comments above.   Businesses often get into some  'fancy'  tax deductible ways to allocate the above  $50,000. For instance, they allocate more in earlier years and less in later years, etc.  Link  Here for more Ministry perspective on these topics.
        Further, I often refrain from attaching the word  'Expense or Expenditure'  to  'Depreciation'  in order to hopefully distinguish it from the usual consumable Ministry OPERATIONS  'expenses or expenditures.'
        Incidentally,  I strongly advocate the  "block Depreciation accounting method.  This means that the Fixed Assets are grouped for depreciation purposes by estimated life and not by an individual Fixed Asset.  No way should the Ministry mess around with depreciation on each individual Fixed Asset piece.  Let us know at  if you have questions of such related things as mid year acquisitions and Fixed Asset disposition and applicable accumulated depreciation, etc.


        OK, that helps, but I am still unclear about the need for a separate set of LB&E books.


        We more fully discuss this issue in this Writing, but in general, I am convinced that a Ministry should focus on keeping it's books on what is happening on a day-to-day  'live'  controllable basis. Whereby money is obtained (Donations and Earned Income)  from your constituency to be appropriately spent for Current, or live, General and Special OPERATIONAL purposes. Often these OPERATIONAL purposes includes acquiring or paying for financing of LB&E items. Further, the restricted and unrestricted nature of OPERATIONS Fund Balances  (or Net Assets)  is readily known for management purposes without a unnecessary  LB&E net Asset mix.
        On a separate set of LB&E books, a Ministry can annually book these acquisitions, or do what we accountants often call  'capitalize'  the Fixed Assets;  plus record the debt retirement. Some Ministries like to have the LB&E books updated quarterly... or even monthly. But the status of the LB&E Fund Balance (or Net Assets)  is not as needed for management purposes as the above OPERATIONS Fund Balances. I think of the LB&E record keeping as a necessary process, but it is  ''dormant', not  'live'.
        Perhaps you have already noticed that the current financial reports of many small Ministries, churches in particular, seldom report any LB&E information.


        I think I am with you, Jim. Let me say it in my own words.

                "Ministries should carefully set up their Operating set of books to include control over the ordinary buying and financing of fixed assets. But defer until a later date the booking of fixed assets as assets, and their related depreciation, plus applicable change in related liabilities. You recommend a separate set of books for this purpose."


        Right on, Fran .... you said it a lot better that I did!  As applicable you might consider placing the LB&E info into your OPERATIONAL set of books as memo accts as described  when you  Go Here.


            Ok .... thanks again, Jim. You'll be hearing from us if we have questions.

   This publication originated in November 1997 and was  .   UPTD:  June 24, 2010