Nonprofit organizations such as churches, food pantries and so forth are exempt from income taxes in the United States. However, nonprofit organizations do have to maintain financial records relating to doing business, and are required to withhold payroll taxes from employee's paychecks, and are required to file tax returns. Preparation of quarterly or annual financial reports (depending on the size of the organization), is also required in most cases, and this can be a time-consuming exercise, especially for non-accountants.
Assemble all of the church financial records, including all bank deposits, funds disbursed, employee-related expenses and so forth. Ideally this information is already entered into a database so you just have to migrate the data into your accounting software.
Choose a nonprofit (or church) accounting software package if you do not use one already. This accounting software is specifically designed to help nonprofit organizations streamline their accounting procedures as it offers step-by-step instructions to make sure the minimum legal requirements are met. Select an accounting software package based on your needs, smaller churches with simple finances can get by with basic software, but larger organizations probably will need the full-fledged version.
Enter all of the data required by the accounting program to create the annual financial report. At a minimum an annual financial report includes an introduction, a balance sheet, an income statement, and a cash flow report, and other supporting documents as required.
Write the introduction to the financial report. Introductions are very boilerplate and full of legalese, and basically just summarize the contents of the financial report. Many organizations use almost the exact same wording for their financial report introductions year after year and just change the figures to make it current.
Larger churches with complex finances should consider hiring a bookkeeper or accountant at some point as maintaining financial records and producing financial reports can become more than a part time job.