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 means of the COA—the premise 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, resembling:

  • Belongings: What you personal—resembling money, receivables (debtors), stock, and stuck belongings.
  • Liabilities: What you owe—resembling payables (collectors), loans, accrued bills, and deferred earnings.
  • Funds (or fairness): Represents the web value of your organisation.
  • Earnings: Cash coming in from grants, fundraising, items, companies, and investments.
  • Expenditure (direct prices and bills): Cash going out for payments, salaries, hire, utilities, elevating funds, and so on.

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

Organising your COA is crucial for significant and related inner controls. It’s additionally important if you wish to create exterior studies for out of doors 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 in your chart of accounts

The COA is numeric and usually follows a standardised order at a excessive degree. This makes it simpler to type accounts by assigned classes for studies 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 buildings that want to sit down beneath them.

There’s a steadiness 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 shortly and clearly what is going on.

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 resembling:

  • Money and financial institution
  • Receivables or debtors (the cash commissioners owe you or prospects for whom companies 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 applicable. Take into account which classes you want and what degree of element is required. For instance:

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

Mounted belongings

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

  • Land
  • Buildings
  • Plant (e.g. factories)
  • Workplace and laptop tools and software program
  • Automobiles
  • 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 you could 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.    

  • Quick-term liabilities will embody commerce collectors (for items and companies bought however not but paid for), financial institution overdrafts, and loans due inside a yr.
  • Lengthy-term liabilities embody loans due after a couple of yr, leases, and, the place relevant, multi-year grants paid upfront.

4. Construction your funds

The usual accounts for NPO funds are unrestricted and restricted earnings funds. Nonetheless, some non-profits might have endowment funds and sometimes revaluation reserves.

We focus on restricted and unrestricted funds additional in step 9.

5. Construction your earnings 

Evaluate the principle forms of earnings acquired by your NPO. It might be finest if you happen to break up these into separate accounts.  

You must usually establish fundraising earnings and legacies individually from earnings for NPO actions (coming from contracts or grants), buying and selling, and funding earnings.  

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

6. Construction your direct prices

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

These will usually embody salaries, different prices of employees employment, and the contract price 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 embody salaries of help employees, facility prices, skilled charges (authorized and accountancy), advertising bills, utilities, printing, postage, IT, and telephony.

8. Apply departmental overlay

For bigger NPOs, it might be fascinating to analyse earnings and expenditure in numerous components of the organisation (with a geographical segmentation or a practical evaluation).

Usually, 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 area.

9. Restricted and unrestricted fund evaluation

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

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

This can enable you to precisely report back to grant suppliers, aggregating restricted and unrestricted earnings and prices.

10. Preserve your chart of accounts

You must overview your COA yearly to evaluate whether or not it nonetheless works. You would possibly need to tie it to the finances cycle.

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

Ultimate ideas: Evaluate 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 difficult budgets and funding sources, you could need to use accounting software with a level of automation.

It’ll make your job simpler but additionally leaves you room to develop as your funds get extra complicated.

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