A Guide to FASB ASC 958 for Churches

When you hear "FASB ASC 958," it's easy for your eyes to glaze over. It sounds like something only a CPA could love. But in reality, it's just the official rulebook—the U.S. standard for how non-profits, including churches, should present their financial story.

Think of it as the shared language that helps you communicate clearly with your congregation, donors, and even lenders. Getting it right isn't just about compliance; it's a powerful way to demonstrate faithful stewardship of the resources entrusted to you.

Demystifying Church Accounting Standards

For most ministry leaders, accounting jargon like FASB ASC 958 feels like a distraction from the real work. But the heart of this standard is surprisingly simple: it's all about making your financial reports clear, consistent, and understandable.

Following these guidelines helps you build trust by painting an accurate picture of your church's financial health. It moves you from just tracking numbers to answering the real questions your members and leadership are asking:

• How are we handling the funds donated for the new youth center?

• Are we prepared for our big upcoming expenses?

• What portion of our budget is going directly to ministry work versus administrative costs?

• Are we in a stable financial position for the long haul?

Keeping Up with Important Changes

Accounting rules aren't set in stone. One of the biggest shifts in recent memory came with Accounting Standards Update (ASU) 2016-14. This was the most significant update to non-profit financial reporting in over 20 years, and its goal was to make financial statements more useful and less confusing for everyone involved.

The update changed how organizations talk about their net assets, liquidity (cash availability), and overall financial performance. For churches, this meant a fundamental shift in how they had to present their numbers.

In essence, FASB ASC 958 pushes churches beyond simple bookkeeping. It requires a strategic approach to financial communication, ensuring that reports are not just accurate but also meaningful to the people who support the ministry.

To help you see the practical effects of this change, here’s a quick summary of the most important updates from ASU 2016-14:

Key Changes Introduced by ASU 2016-14 to ASC 958

These changes were all about improving transparency and making financial reports more practical for decision-making—both for church leadership and for the congregation.

What We’ll Cover Next

In this guide, we're going to break down the essentials of FASB ASC 958 into simple, manageable pieces.

We’ll start with the foundation: the two net asset classes. You'll get a clear understanding of how to classify funds based on whether a donor has attached strings.

From there, we’ll dive into the rules for recording contributions and managing donor restrictions—a common headache for many churches. Finally, we'll see how it all comes together in your key financial statements and the disclosures you need to include. By the end, you'll have a clear roadmap for navigating these standards with confidence.

Understanding the Two Net Asset Classes

One of the most practical changes to FASB ASC 958 was the move to simplify how churches classify their money. The old system had three categories—unrestricted, temporarily restricted, and permanently restricted—which, frankly, often caused more headaches than they were worth. Now, it's down to just two.

Imagine passing two separate collection baskets during a service. The first is for the general offering. Those funds can be used for anything the church needs, from keeping the lights on to buying coffee for fellowship hour. The second basket, however, might be clearly labeled "Building Fund" or "Youth Mission Trip." Any money dropped in that basket can only be used for that specific purpose.

That simple picture gets you right to the heart of the two net asset classes:

• Net Assets without Donor Restrictions: This is your church's main checking account, so to speak. It’s all the money that comes in without any specific strings attached by the person who gave it.

• Net Assets with Donor Restrictions: This is the "Building Fund" basket. It holds all the contributions that donors have earmarked for a particular project, ministry, or timeframe.

This two-basket system makes it much easier to see your church’s real financial position. At a glance, you know exactly what you have available for general ministry and what’s been set aside for special projects by your congregation.

Net Assets Without Donor Restrictions

This is the financial engine of your day-to-day ministry. These are the resources your leadership can direct as needed to fulfill the church's mission. Think of it as your operational cash.

Most of the money in this category comes from a few common sources:

• General Tithes and Offerings: The weekly contributions people give without designating them for anything specific.

• Unrestricted Gifts: One-off donations where the giver simply says, "Use this where it's needed most."

• Other Income: Money from things like renting out the fellowship hall or selling resources, as long as that income isn't also restricted.

Now, it's really important to get this next part right. "Without donor restrictions" doesn't mean "without any restrictions." Your own church board can still decide to set some of this money aside.

The Role of Board-Designated Funds

This is where things can get a little fuzzy for church leaders. A board-designated fund is created when your leadership team internally decides to earmark some of the general fund money for a specific goal—maybe a new van, a sound system upgrade, or a rainy-day reserve.

The key takeaway is this: because the board—not a donor—made the decision, these funds are still legally classified as Net Assets without Donor Restrictions. The board put the label on it, and the board has the power to take that label off if ministry needs change.

This distinction is absolutely critical for reporting correctly under FASB ASC 958. While you'll track these designated funds carefully for your own internal budgeting, on your official financial statements, they get reported right alongside the rest of your unrestricted assets.

To maintain transparency, you'd simply add a note to your financial statements explaining the board's decision. This keeps you compliant with accounting standards while clearly communicating your leadership's stewardship and planning to the congregation.

How to Handle Contributions and Donor Restrictions

Once you've got a handle on the two net asset classes, the next puzzle piece is knowing how to properly record the money flowing into them. For any church, contributions are the lifeblood of ministry. But FASB ASC 958 has some very specific rules about when and how to recognize this income, especially when donors attach strings.

A concept you absolutely have to master is the difference between a conditional contribution and an unconditional contribution. An unconditional gift is straightforward—you recognize it as revenue the moment it's received. Think of your weekly offering. As soon as that money hits the plate, it's considered income for the church.

A conditional contribution, however, isn't really yours yet. It depends on a specific future event happening, and you can't record it as revenue until that condition is met.

Distinguishing Conditions from Restrictions

This is where things can get a little tricky, and it’s a common stumbling block for church finance teams. A donor-imposed condition is a barrier you have to overcome before you're even entitled to the money. A donor-imposed restriction, on the other hand, just tells you how to use the funds once you already have them.

Let's ground this in some real-world church scenarios:

• Conditional Gift Example: A major donor pledges $50,000 for a new sanctuary roof, but only if the congregation first raises a matching $50,000. That "if" is the key—it creates a condition. You can't book that $50,000 pledge as revenue until your matching fund drive is successful.

• Restricted Gift Example: A family gives your church $5,000 and specifies it must be used for the upcoming youth mission trip. There's no "if" here; the church has the money now. The donor has simply placed a restriction on its use. You would record this as revenue immediately, but in the Net Assets with Donor Restrictions class.

To bring more clarity to this area, the Financial Accounting Standards Board issued ASU 2018-08. This update helped create a clearer framework for figuring out if a gift has a true barrier that makes it conditional, which helps ensure organizations aren't recognizing revenue too early.

The Lifecycle of a Restricted Contribution

Managing restricted funds is at the heart of good stewardship and is a major focus of FASB ASC 958. It’s about more than just putting the money in the right "bucket." You need a clear process to follow these funds from the moment they arrive to the moment they are spent as the donor intended.

Properly handling restricted funds isn't just an accounting rule; it's a promise you make to your donors. It demonstrates that you honor their intentions and are stewarding their gifts with integrity and transparency.

Here’s the simple, three-step journey these funds take:

1. Receive and Record: When a restricted gift comes in, you immediately record it as revenue, but specifically within the "Net Assets with Donor Restrictions" class.

2. Spend and Track: As your church incurs expenses that fulfill the donor's purpose (like buying plane tickets for that mission trip), you pay for them out of your general cash. This is where meticulous tracking becomes critical.

3. Release the Restriction: Now, you make a journal entry to "release" the restricted funds. This is purely an internal move. It shifts the amount you spent from "Net Assets with Donor Restrictions" over to "Net Assets without Donor Restrictions," which basically reimburses your operating fund.

This release process is absolutely essential. It’s how you officially show that the donor's wishes have been met and the funds are no longer tied up. Using dedicated church donation tracking software can make this whole process nearly automatic, preventing the manual errors that can easily happen and ensuring every restricted dollar is accounted for. This keeps your financial statements accurate and gives you a true picture of the resources available for your ministry's operations.

Putting It All on Paper: Preparing Your Financial Statements

This is where the rubber meets the road—translating the rules of FASB ASC 958 into the actual reports that tell your church’s financial story. Getting these right is essential for providing clear, transparent, and consistent information to your congregation, board, and leadership. Three core statements are at the heart of this process.

First up is the Statement of Financial Position. Think of this as the nonprofit version of a for-profit balance sheet. It’s a snapshot in time, showing what your church owns (assets), what it owes (liabilities), and its net worth (net assets). The most important part for ASC 958 compliance is clearly breaking out your net assets into two classes: those with donor restrictions and those without. This one detail gives readers an instant understanding of your financial flexibility.

Next, you have the Statement of Activities, which is your church’s income statement. It shows all the revenue and expenses over a specific period, like a month or a full year, and ultimately calculates the change in your total net assets. This statement has to show the activity happening within both net asset classes, including how restricted funds came in and, just as importantly, how they were released from their restrictions once the donor's wishes were met.

Telling the Whole Story: Functional vs. Natural Expenses

One of the most powerful—and non-negotiable—requirements of FASB ASC 958 is the need to report expenses by both their natural and functional classifications. This isn't just accounting jargon; it’s a crucial practice that shows not just what your church spent money on, but why it spent it.

Here’s a simple way to think about it:

• Natural Expenses are the types of costs you have. This is the stuff you’d see on a receipt: salaries, rent, utilities, and office supplies.

• Functional Expenses are the purpose behind those costs. These are typically split between your main programs (like youth ministry, worship services, or community outreach) and your supporting services (like general administration and fundraising).

For example, your pastor's salary is a natural expense. But you wouldn't just list it as one big number. A portion of that salary gets allocated to the "worship services" function, while another part might be allocated to "administration." Presenting this breakdown is mandatory, and it offers incredible insight into how well your church is directing its resources toward its core mission. To see how these reports come together, check out our in-depth guide on the essential financial statements for churches.

The Notes: Building Trust Through Disclosure

Great financial statements go beyond just the numbers on the page. FASB ASC 958 requires you to include specific disclosures in the notes to provide context that the numbers can't convey on their own. One of the most important new requirements is the liquidity and availability disclosure.

This note explains exactly how your church is managing its cash to meet its needs over the next 12 months. It’s a forward-looking statement that builds tremendous trust by showing your congregation that leadership is thinking strategically about financial stability and has a plan for its cash flow.

Adopting new accounting standards can feel like a heavy lift at first, but the payoff in transparency is massive. The initial work almost always leads to financial reports that are far clearer and more useful for everyone involved.

Consider the nonprofit sector's recent adoption of new lease accounting standards. It was a huge challenge for many organizations initially. However, the Not-for-Profit Advisory Committee later confirmed that the effort paid off, resulting in much clearer and more comparable financial statements across the board. You can read more about this feedback on BDO.com. The same principle applies here: the hard work of ASC 958 compliance pays you back with greater clarity and stronger congregational confidence.

Your Step-by-Step Compliance Checklist

Trying to turn dense accounting standards into your everyday bookkeeping can feel like a huge task. The good news is that getting compliant with FASB ASC 958 is perfectly achievable when you have a clear plan.

Think of this as your roadmap, breaking down the process into concrete steps that will bring your church’s financial reporting up to speed, making it transparent, accurate, and fully compliant.

This visual gives you a great high-level view of the process, from gathering your initial data all the way to generating your final, compliant financial statements.

As the infographic shows, solid reporting under FASB ASC 958 all starts with a strong foundation—getting the data right and classifying expenses correctly from the get-go.

Phase 1: Foundational Setup

The first big step is to get your core accounting structure in line with the standards. Nailing this part of the process makes everything that follows so much easier.

1. Review and Update Your Chart of Accounts: Your chart of accounts is the skeleton of your entire financial system. The very first thing to do is simplify your net asset accounts to reflect the two required classes: Net Assets with Donor Restrictions and Net Assets without Donor Restrictions. This move officially retires the old three-class system and gets your books aligned with today’s requirements.

   • Pro-Tip: Even though you only need two main net asset accounts for your external reports, you should absolutely use sub-accounts or tags internally. This lets you track specific funds like the "Building Fund" or "Missions Fund," giving you the detailed control you need without cluttering up your public-facing statements.

2. Establish a System for Tracking Restrictions: This is crucial—you can't rely on memory or a jumble of spreadsheets. You need a rock-solid process for documenting every single restricted donation that comes through the door. The system must capture the donor's name, the date, the amount, and exactly what the restriction is for.

   • Pro-Tip: This is where modern church accounting software becomes a game-changer. When you record a designated gift, a good system will automatically funnel it into the correct restricted fund, creating a perfect audit trail right from the start.

Phase 2: Implementation and Reporting

Once that foundation is solid, you can shift your focus to the specific reporting practices that show everyone you're being transparent and accountable.

3. Implement Functional Expense Allocation: It's no longer enough to just list what you spent money on (like salaries or utilities). You also have to report why you spent it—its functional purpose (e.g., Worship Services, Administration). Your job is to come up with a reasonable and consistent way to allocate those shared costs.

   • Pro-Tip: A popular method is to allocate things like rent and utilities based on the square footage each ministry uses. For salaries, a simple time study can help you figure out how staff split their hours between program-related work and general administrative tasks. Whatever method you choose, just be sure to document it clearly in your church’s financial policies.

A well-designed, rational expense allocation process is an absolute necessity, as stakeholders want to know—and have a right to know—how the organization uses its resources to accomplish its mission.

4. Draft Your Liquidity Disclosure: This is a required note in your financial statements, and it needs both words and numbers. First, explain in plain language how your church manages its cash and other liquid resources to meet its expenses over the next 12 months. Then, you have to provide the actual numbers to back up your explanation, showing exactly what financial assets are available for general use.

   • Pro-Tip: A simple way to approach this is to start with your total financial assets. From there, subtract any assets that aren't easily available, like donor-restricted funds tied to a long-term project or any reserves the board has set aside. What's left is your final number.

To help you put all of this into practice, here is a simple checklist you can use to track your progress.

ASC 958 Compliance Checklist for Churches

This checklist walks you through the key areas of ASC 958 compliance, providing actionable steps and important considerations to ensure your church's financial reporting is accurate and transparent.

Completing these steps will put you in a strong position, ensuring your church's financials not only meet the required standards but also tell a clear and compelling story of your ministry's stewardship.

How Modern Software Makes ASC 958 Compliance Simple

Trying to manage FASB ASC 958 with spreadsheets is like trying to navigate a new city with a hand-drawn map. You might get there eventually, but it's going to be slow, stressful, and full of wrong turns. This is where modern accounting software built specifically for churches completely changes the game.

Instead of trying to bend generic business software to your will, a purpose-built system is designed with ASC 958's rules baked right in. Key concepts, like separating funds with donor restrictions from those without, aren't just a feature—they're the entire foundation.

This built-in alignment turns compliance from a frantic, year-end chore into an automatic part of your daily routine. Every gift, expense, and transfer is handled within a framework that naturally follows the standards, meaning your reports are accurate and compliant by default.

Putting Key Compliance Tasks on Autopilot

The right software basically acts as a digital treasurer, handling the most tedious parts of church accounting and ASC 958 for you. It closes the gap between the complex accounting standards and your day-to-day work, freeing you up to focus on ministry.

Here’s how it tackles the biggest compliance headaches:

• Automated Fund Tracking: When a donation comes in for the "Building Fund," the software instantly tags it as a Net Asset with Donor Restrictions. This simple step wipes out the risk of human error and creates a perfect audit trail for every single restricted dollar.

• One-Click Compliant Reporting: Forget spending hours wrestling with spreadsheets. Generating a Statement of Activities or a Statement of Financial Position that correctly shows the different net asset classes becomes a simple click of a button. The system does all the heavy lifting.

• Effortless Functional Expense Allocation: Smart tools let you set up allocation rules once and then forget them. For example, you can assign 70% of the pastor’s salary to program services and 30% to administration. From then on, those percentages are applied automatically, making functional reporting a breeze.

A purpose-built system doesn't just make FASB ASC 958 compliance easier; it makes it a natural outcome of your daily financial management. It shifts the burden from the person to the process, ensuring consistency and accuracy.

Moving from Compliance to Clarity and Confidence

Beyond just checking the boxes for compliance, this technology gives you incredible clarity. Imagine knowing, in real-time, the exact balance of the youth mission fund or how much of the general budget is actually available for a new outreach project. This kind of visibility empowers your leadership to make smarter, more confident decisions.

By connecting directly with your giving platforms and bank accounts, modern tools ensure money flows accurately into the right funds without anyone lifting a finger. This eliminates the drudgery of manual data entry and reconciliation—the very places where costly mistakes tend to happen. Our guide to finding the right accounting software for small churches dives deeper into these benefits.

At the end of the day, using software like Grain, which is built on a true fund accounting framework, helps your church move beyond just meeting the rules. It empowers you to build a culture of financial transparency and trust, proving your commitment to great stewardship to your board, your congregation, and your community.

A Few Common Questions We Hear About FASB ASC 958

Knowing the rules is one thing, but applying them in the real world of church finance is another. Day-to-day operations, budget meetings, and managing volunteers always bring up practical questions. Let's walk through a few of the most common ones we see.

Getting these right isn't just about checking a compliance box; it's about building trust through clear, honest financial storytelling.

How Does ASC 958 Change How We Should Build Our Annual Budget?

Think of FASB ASC 958 as a foundational guide for your church's budgeting process. Its biggest influence is the bright line it draws between funds with donor restrictions and those without.

Your annual budget has to honor that distinction. It’s easy to accidentally earmark funds from a building campaign or a missions trip offering for general operating costs like the light bill or staff salaries. But doing so goes against the donor's wishes and paints an inaccurate picture of your financial health.

A good, compliant budget will clearly forecast income and expenses for both types of net assets. This gives you a realistic, trustworthy roadmap for the ministry year ahead.

Do We Have to Report All Our Volunteer Hours as Contributions?

This is a classic question, and the short answer is almost always no. While your volunteers are the lifeblood of your ministry, FASB ASC 958 sets a very high bar for when their time can be counted as a formal contribution on your financial statements.

Typically, you can only record the value of volunteer services when two specific things are true:

• The work requires a specialized skill that the volunteer brings to the table (think accountants, electricians, or lawyers).

• Your church would have had to pay someone for that service if the volunteer hadn't stepped up.

For example, if a CPA in your congregation volunteers to perform the annual audit, you would record the fair market value of that service. On the other hand, general help like greeting at the door, ushering, or serving coffee, while incredibly valuable, doesn't meet the accounting standard and shouldn't be recorded as a contribution.

Honoring your volunteers is vital, but accounting rules demand a clear, objective standard. By only recognizing specialized, professional-level services you would have otherwise paid for, you keep your financial statements accurate and prevent them from being artificially inflated.

Do These Rules Really Apply to a Small Church Like Ours?

Yes, absolutely. U.S. Generally Accepted Accounting Principles (GAAP), which is the framework FASB ASC 958 belongs to, applies to all nonprofit organizations, no matter their size or budget. There's no "small church" pass on these standards.

If your church ever needs to show its financial statements to an outside party—like a bank for a loan, a foundation for a grant, or your denomination for annual reporting—you’ll be expected to be following these rules.

But this is about more than just compliance; it's about credibility. Following FASB ASC 958 signals a deep commitment to good stewardship. It shows your congregation, and anyone else who supports your ministry, that you are managing the resources they’ve entrusted to you with integrity and care.

Managing fund accounting correctly is the bedrock of ASC 958 compliance. At Grain, we've built true, fund-based accounting software designed from the ground up for how churches actually operate. See how you can achieve clarity and confidence in your finances by joining the waitlist for Grain.