FAQ: What’s the Difference: Book vs. Market Value?
Book Value is how much cash you have deposited into the fund. It includes interest and dividend deposits that your investments have earned.
Market Value is how much the investments are worth if you were to sell them at a given date.
What do we record on our books? You should record Market Value in your general ledger at least annually. Offset the change in value with an income item “unrealized investment gains/losses.” If you adjust this too frequently, then your church leaders will ride the roller coaster of the ups and downs of the markets, and it will become a distraction for the financial management of your church. Most churches make this final adjustment at the end of the year.
What can we spend? Your endowment spending should be 3-5% of your market value, based on a three-year average market value. The laws (UPMIFA – Uniform Prudent Management of Investment Funds Act) say that you should no longer spend based on earned income, but use a %-age method as I have described. If you spend more than this, then that is considered principal and requires a vote from your congregation.