Should you’re managing funds for a non-profit organisation (NPO), you’ll want a chart of accounts (COA).

All of your cash flows by way of the COA—the idea of your monetary reporting and evaluation.

The COA is an index of all monetary accounts in your NPO’s nominal or common ledger listing. With these accounts, you group particular classes, akin to:

  • Belongings: What you personal—akin to money, receivables (debtors), stock, and stuck belongings.
  • Liabilities: What you owe—akin to payables (collectors), loans, accrued bills, and deferred revenue.
  • Funds (or fairness): Represents the online value of your organisation.
  • Earnings: Cash coming in from grants, fundraising, items, providers, and investments.
  • Expenditure (direct prices and bills): Cash going out for payments, salaries, lease, utilities, elevating funds, and many others.

Your monetary software program will use these classes to mixture transactions into your NPO’s monetary statements and experiences, such because the stability sheet and revenue and expenditure assertion. 

Organising your COA is important for significant and related inner controls. It’s additionally very important if you wish to create exterior experiences for outdoor funding sources.

Right here’s our 10-step information to organising a chart of accounts for a non-profit:

1. Devise the high-level structure for your chart of accounts

2. Structure your assets

3. Structure your liabilities

4. Structure your funds

5. Structure your income

6. Structure your direct costs

7. Structure your expenses

8. Apply departmental overlay

9. Restricted and unrestricted fund analysis

10. Maintain your chart of accounts

Final thoughts: Review your accounting needs

1. Devise the high-level construction to your chart of accounts

The COA is numeric and usually follows a standardised order at a excessive degree. This makes it simpler to kind accounts by assigned classes for experiences and when finding particular nominal ledger accounts.

It’s conventional to make use of the next numbers for every class:

  • Belongings: 1000-1999
  • Liabilities: 2000-2999
  • Funds: 3000-3999
  • Earnings: 4000-4999
  • Direct prices: 5000-5999
  • Bills: 6000-9999

Within the following steps, we’ll look at every account class and devise the account constructions that want to take a seat beneath them.

There’s a stability to be struck within the variety of accounts. Introducing extra accounts permits a extra detailed evaluation, however too many accounts make it onerous to see rapidly and clearly what is occurring.

2. Construction your belongings 

The asset construction for many NPOs is comparatively easy and must be break up between present and stuck belongings.

Present belongings

Present assets usually comprise classes akin to:

  • Money and financial institution
  • Receivables or debtors (the cash commissioners owe you or clients for whom providers are delivered)
  • Inventories if the NPO is producing or holding items of any worth
  • Prepayments or deposits.

You’ll be able to additional subdivide every of those classes as acceptable. Take into account which classes you want and what degree of element is required. For instance:

  • You received’t want a list class when you don’t produce or maintain any items.
  • If prepayments are comparatively small, you received’t have to subdivide this class.

Fastened belongings

You buy fixed assets for the long run. Among the extra frequent classes of fastened belongings are:

  • Land
  • Buildings
  • Plant (e.g. factories)
  • Workplace and laptop tools and software program
  • Autos
  • Furnishings and fixtures
  • Leasehold enhancements
  • Investments.

Which of those classes you’ll want will once more rely in your actions.

You won’t want a plant, land or constructing class. However chances are you’ll personal tools, software program, furnishings, and fixtures. 

3. Construction your liabilities

The account construction of liabilities inside a COA tends to begin with short-term or present liabilities (these turning into due inside 12 months), adopted by long-term liabilities.    

  • Brief-term liabilities will embrace commerce collectors (for items and providers bought however not but paid for), financial institution overdrafts, and loans due inside a yr.
  • Lengthy-term liabilities embrace loans due after multiple yr, leases, and, the place relevant, multi-year grants paid prematurely.

4. Construction your funds

The usual accounts for NPO funds are unrestricted and restricted revenue funds. Nevertheless, some non-profits might have endowment funds and infrequently revaluation reserves.

We talk about restricted and unrestricted funds additional in step 9.

5. Construction your revenue 

Overview the primary kinds of revenue obtained by your NPO. It might be greatest when you break up these into separate accounts.  

It’s best to usually establish fundraising revenue and legacies individually from revenue for NPO actions (coming from contracts or grants), buying and selling, and funding revenue.  

If it’s useful, you may need to break up public fundraising from company fundraising and authorities grants from trusts and foundations.

6. Construction your direct prices

Direct prices are straight related to delivering the charitable actions of your NPO.

These will usually embrace salaries, different prices of workers employment, and the contract value of any third events related to the supply of these actions.

7. Construction your bills

When you’ve accounted for direct prices, you’ll have to analyse your remaining bills.

These would be the organisation’s overheads and usually embrace salaries of assist workers, facility prices, skilled charges (authorized and accountancy), advertising bills, utilities, printing, postage, IT, and telephony.

8. Apply departmental overlay

For bigger NPOs, it could be fascinating to analyse revenue and expenditure in numerous elements of the organisation (with a geographical segmentation or a purposeful evaluation).

Sometimes, you do that by devising a set of departmental codes and making use of these to your monetary transactions.

With some software program, this departmental code is appended to the nominal ledger account; in others, it’s handled as a separate discipline.

9. Restricted and unrestricted fund evaluation

Should you obtain grants or elevate funds for particular initiatives, you’ll usually have to deal with that revenue as ‘restricted’ and account for it and all matching prices individually. 

In a COA, that is greatest dealt with as an overlay, utilizing the identical fundamental accounts with a set of fund codes. You’ll be able to then analyse revenue and prices for all such grants or initiatives.

This may assist you to precisely report back to grant suppliers, aggregating restricted and unrestricted revenue and prices.

10. Preserve your chart of accounts

It’s best to evaluation your COA yearly to evaluate whether or not it nonetheless works. You may need to tie it to the finances cycle.

Nevertheless, you may additionally need to evaluation the COA when you’re placing in a brand new finance system or if there’s progress or a change in reporting necessities.

Last ideas: Overview your accounting wants

The way you do your accounting is as much as you however perceive that NPOs have distinctive and complicated accounting practices that always want oversight from a number of stakeholders.

Due to your sophisticated budgets and funding sources, chances are you’ll need to use accounting software with a level of automation.

It’ll make your job simpler but in addition leaves you room to develop as your funds get extra advanced.

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