Virtual Debt Servicing Matters   5019-02   ZZchu

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                            TO:  Interested Churches                                                                                     FROM: Jim Bramer, Retired CPA-Auditor
                                                                                                                                                                 FILE:  5019-02/Chu

                             RE:  Virtual Debt Servicing Matters                                                                  Originated in March 2001

      Below is a hypothetical Online Email thread (THRD) between  and members of the M)inistry F)inance Team - MFTeam: MFTeam members are PAT (Ministry Executive), LEE (Volunteer Board Treasurer), and FRAN (Ministry Computer Bookkeeper).   Click here and go to a list of THRDs at

        To remind you, Jim, we are a church with an annual operating budget of well over $500,000. Our present facilities are paid for, but we need more room and are gearing up for a new building construction in the near future.   Thank you for making available information known about Church Debt at  0126.   We anticipate getting a mortgage for part of the costs as we expect to not only make monthly payments of Principal and Interest, but also make payments on the Principal only as Building Fund designated gifts come in, etc.  Via a Financial Stewardship campaign we will be asking our people to make 'over and above' donations to this special Building Fund project.  Do you have any finance and accounting observations?  

          That's neat, Lee.  Sounds like the Church is healthy since you need more room.  Please note the Online Documents within the
Web Publication List below; I suggest you review the content of these Online Documents first since it sets the stage for much of the following. 

        Very good .... much of it looks familiar.

    FR: JIM -
                     Let me place this hypothetical information before us -- the Church's fiscal year flows from May 1st to the following April 30th  

Anticipated new Facility costs


Construction costs from available money

accumulated within the Building



Amount to finance via a mortgage


Probable monthly mortgage payment

of principal and interest expense

$ 4,000

        Our actual numbers, of course, are quite different, but that's OK as they should serve our purposes here.

       For the applicable period of time, the church should take an approach of what I call VIRTUAL DEBT SERVICING. I define this as: 

    The Church increases its General Purpose Fund budget to include the amount of  anticipated Mortgage payments (Debt Servicing) on money that it knows it will need to borrow in order to complete its Building/Facility Construction project. This Board Discretionary money is transferred into your own Building Fund.  We take these steps because the weekly giving must ultimately be enough for such an actual Debt Service payment.

Initial Sample Scenario Considerations:
        1>  The May xxx0 through April xxx1 budget includes $48,000
                 ($4,000 times 12) as the VIRTUAL DEBT SERVICING
        2>  In May xxx0 and every month thereafter the 
        3>  Church writes a check to itself for $4,000 and
        4>  Places it in the Building Fund 

        It may take a while before the weekly offerings to the General Purpose Fund are enough to fund the Monthly
VIRTUAL DEBT SERVICING amount. What do we do then? 

   FR: JIM -
        The leadership needs to monitor this very closely since the long term goal is to make the actual Debt Service payment from the weekly giving to the General Purpose Fund.  Plus be able to reduce the amount borrowed by the amounts designated for the Building Fund.
        However, in the initial stages of the VIRTUAL DEBT SERVICING effort the General Purpose Fund might run a deficit. See Sample Year End Scenario below:


General Purpose Fund:

or divide

by 52

Total Annual Income


$ 9,579



$ 48,000

All other approved



Total Annual Expenditures


$ 9,825

Year End (Deficit)


$ (245)

        In this case, the above $12,752 would come back from the Building Fund, since there really is no construction, etc at this time, and eliminate the General Purpose Fund deficit.  Why --- because the $48,000 was Board Discretionary inter-fund transfers (the Board made this transfer voluntarily) and now it can be sent back, etc.
        If the $12,752 deficit amount comes closer to $48,000, the Church obviously has problems with any type of actual future Debt Servicing by the
General Purpose Fund.  There may need to be cuts in future Operation costs.

        What difference would there be if we no longer will be spending some $3,000 monthly  ($36,000 for the year) for Facility or Building Rental?

   FR: JIM -
        The major difference would be the relationship between the annual $36,000 and the
VIRTUAL DEBT SERVICING annual amount of $48,000.  Or the Church would need to annually fund as VIRTUAL DEBT SERVICING  within the General Fund only the difference between $48,000 and $36,000, or $12,000.  CAUTION:  Be aware of some additional Facility Operating costs you will also have because of your own Building that you may not have had at the place you were renting..

        Thanks, Jim -----I think I 'get the message'.  I will take all of this up with our Church leadership and probably be get back to you with further questions.

                                          See WEB    PUBLICATION   LIST  BELOW

Budgets - PlanJecting
Church Accounting Options 
Church Financial Policies Q & A
Construction and Land/Bldg&Equipment
Debt and
Evangelical Christian Credit Union 
Fixed Assets Accounting at Ministries
Fixed Assets and Debt Retirement
Fund Accounting

Fund Accounting - Not Fun 
Fund Raising Philosophy 
  1.         Special Purpose Funds Perspective 
  2.         Ten Commandments - Ministry Finance 

    Please Click here for list of Church resources here on The bulk of this Publication originated in March 2001 and was   UPTD: April 24, 2010