For those who’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 record. With these accounts, you group particular classes, reminiscent of:

  • Property: What you personal—reminiscent of money, receivables (debtors), stock, and glued belongings.
  • Liabilities: What you owe—reminiscent of payables (collectors), loans, accrued bills, and deferred revenue.
  • Funds (or fairness): Represents the web value of your organisation.
  • Revenue: Cash coming in from grants, fundraising, items, companies, and investments.
  • Expenditure (direct prices and bills): Cash going out for payments, salaries, lease, utilities, elevating funds, and so forth.

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

Establishing your COA is crucial for significant and related inside controls. It’s additionally very important if you wish to create exterior stories for outdoor funding sources.

Right here’s our 10-step information to establishing 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 on your chart of accounts

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

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

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

Within the following steps, we’ll study every account class and devise the account buildings that want to sit down under 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 laborious to see rapidly and clearly what is going on.

2. Construction your belongings 

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

Present belongings

Present assets sometimes comprise classes reminiscent of:

  • 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. Contemplate which classes you want and what degree of element is required. For instance:

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

Fastened belongings

You buy fixed assets for the long run. A number of the extra widespread classes of mounted belongings are:

  • Land
  • Buildings
  • Plant (e.g. factories)
  • Workplace and laptop gear 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 may not want a plant, land or constructing class. However you could personal gear, 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 changing into due inside 12 months), adopted by long-term liabilities.    

  • Brief-term liabilities will embrace commerce collectors (for items and companies 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 could have endowment funds and infrequently revaluation reserves.

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

5. Construction your revenue 

Assessment the primary kinds of revenue acquired by your NPO. It will be greatest should you cut up these into separate accounts.  

You must sometimes 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 cut 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 sometimes 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 sometimes embrace salaries of help workers, facility prices, skilled charges (authorized and accountancy), advertising and marketing bills, utilities, printing, postage, IT, and telephony.

8. Apply departmental overlay

For bigger NPOs, it could be fascinating to analyse revenue and expenditure in several 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

For those who obtain grants or elevate funds for particular tasks, 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 primary accounts with a set of fund codes. You’ll be able to then analyse revenue and prices for all such grants or tasks.

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

10. Preserve your chart of accounts

You must evaluate 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 evaluate the COA should you’re placing in a brand new finance system or if there may be development or a change in reporting necessities.

Last ideas: Assessment 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, you could 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 complicated.

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