How to Set Up a Chart of Accounts for Your Nonprofit
Setting up a chart of accounts (COA) for nonprofit organizations is an important process that enables organizations to track and report financial transactions accurately. A COA is a listing of all the financial accounts in the general ledger. It is a tool which provides a framework for organizing the yearly activity into appropriate financial categories.
Setting up an effective COA helps to ensure financial records are organized and makes preparing financial reports more efficient. The COA can also be utilized by organizations to prepare their annual budgets and track their donor restricted funds, which helps to ensure resources are being used in service of the organization’s mission. Here are some steps to help set up a COA:
- Define the organization’s major financial categories. Listed below are some major categories to include on a COA.
- Assets
- Liabilities
- Net Assets/Equity
- Revenue
- Expenses
- Create an account numbering system for each of the major categories. By assigning account numbers, this makes it easy to find similar accounts. Listed below is a common numbering system to be used for a nonprofit organization.
- Assets – 1000-1999
- Liabilities – 2000-2999
- Net Assets/Equity – 3000-3999
- Revenue – 4000-4999
- Expenses – 5000-5999
- Create subgroups for tracking purposes. Nonprofit organizations need detailed accounts to track revenue and expense. For example, nonprofit organizations track donations from individuals and corporations separately. Listed below are some examples of subgroups to be used for a nonprofit organization.
- 4010 Individual Donations
- 4020 Corporate Donations
- 4030 Grant Revenue
- 4040 Fundraising Income
- 5100 Program Expenses
- 5110 Salaries for Program Staff
- 5120 Program Supplies
- 5200 Administrative Expenses
- 5210 Office Supplies
- 5220 Rent and Utilities
After a nonprofit organization has an established a working and functional COA, it can then explore additional reporting features of its general ledger system such as class tracking to aid in the reporting requirements for grants, donor restricted funds, and other segments of the organization. To learn more about practices for tracking donor restricted funds, please see a previously published article, linked here.
As a nonprofit organization continues to grow, additional accounts may be added. It is essential to review and update the COA annually to ensure it continues to align with the organization’s goals and financial reporting needs.
Setting up a COA is an important part of being organized and maintaining financial clarity. By defining categories, creating a logical numbering system, and assigning subgroups, a COA can help a nonprofit organization make sound financial decisions and ultimately meet its mission.
If you have questions about the information outlined above, please contact us, our seasoned and experienced nonprofit professionals are here to help. You can also learn more about our nonprofit services by visiting our Nonprofit industry page.
