nonprofit-accounting-chart-of-accounts

Nonprofit Accounting 201: What is a Chart of Accounts?

Briana

Successfully running a non-profit organization requires just as much thought, effort and organization as a for-profit business. In fact there are times when regulations and requirements may be even more stringent. Proper planning and organization ensure that accounting does not have to be an overly complex task. It also ensures that when the time comes to compile your nonprofit financial statements and to provide information to various parties, you can do so quickly and accurately. 

One tool to accomplish this is a "Chart of Accounts." In this article we’ll explore exactly what this document is, and how you can prepare one in an efficient manner. Here’s what we’ll cover:

nonprofit-accounting-chart-of-accounts-what-is

What Is A Chart Of Accounts? 

A "Chart of Accounts" or "COA" is one of the most important accounting documents prepared by a nonprofit organization. A COA is a list of the financial accounts for the purposes of recording transactions in the general ledger for nonprofit organizations. This is a "living document," which means that accounts are added over time when needed.  

There are two main reasons why the preparation of a COA is so important - compliance and overall financial management.

Let’s cover compliance first. In order to maintain compliance with state and federal regulations, tax-exempt organizations must be able to show the sources and amounts of income and expenses. IRS Form 990 is the place to do this and ensure their non-profit tax status stays intact. The COA helps organize data to make compiling the applicable filings a more straightforward process for many nonprofits.  

The COA also helps organizations in their overall financial management. Taking the steps necessary to prepare a COA is a great way to ensure that your income and expenses are detailed accurately. In addition, because you need to focus on the details of all of your accounts to create the COA, the act of compiling it allows for your organization to discover and address any discrepancies, which ultimately provides enhanced transparency. That transparency will help provide a level of comfort to donors in their quest to provide gifts to reputable organizations!

nonprofit-accounting-chart-of-accounts-what-isTristan is glad to be learning about charts of accounts!

If you are using accounting software like Quickbooks, or an all-in-one software like Springly, they very well may provide a chart of accounts for you. You may even be able to find a COA sample in the various available excel templates for nonprofit accounting. Regardless of which guide you use, you’ll still need to double-check your categories to make sure they are relevant. Also, the accuracy of your software-produced chart is only as good as the information you input, so it's important to double-check.

At the heart of the Chart of Accounts is proper organization of categories. Each subcategory in the nonprofit chart of accounts corresponds to the two main financial statements, i.e., the statement of financial position (the nonprofit balance sheet) and the statement of activities

nonprofit-accounting-chart-of-accounts-structure

How Is A Chart Of Accounts Structured?

The Chart of Accounts is broken down into 5 separate subcategories. To make organization easy and uniform, accountants assign a series of numbers to each subcategory. This is how it typically looks:

  1. 1000 to 1999: Assets, or things that you own. Cash, receivables, inventory, and fixed assets all fall within this category.

  2. 2000 to 2999: Liabilities, or what you owe. Accounts payable and deferred revenue are perfect examples. 

  3. 3000 to 3999: Net Assets, or your overall net worth. 

  4. 4000 to 4999: Income, or revenue. Revenue includes money you gain from contributions, donations, membership dues, grants, merchandise sales, or fundraising as well as income from investments. 

  5. 5000 to 5999: Expenses, or money you spend on salaries, payroll taxes, rent, utilities, or other bills.

Your first step in creating a Chart of Accounts is to make a list of the various accounts that you have. Group them into the five functional categories above. You’ll also be able to see which categories don’t apply to your organization and then you can delete them for clarity. 

From there, you’ll want to make subcategories and sub-subcategories. The last level of organization is the account name itself. For example, in your assets, you may have:

  • Asset > Bank > Checking Account

  • Asset > Bank > Saving Account

  • Asset > Bank > Petty cash

The numbering of each category can vary from three to five digits depending on the size of your organization. With this hierarchical system, it’s possible to create as many accounts as necessary and number each and every account

Although these are "best practices," they are not governed by any specific law or regulation. However, if you do make any deviations or customizations, make sure to follow these tips:

nonprofit-accounting-chart-of-accounts-how-to-organize

How To Organize Your Chart Of Accounts

Keep It Simple 

For instance, within the category of: "Expenses > Salary expenses," you don't need to create an account for each individual member of your staff. Instead, you can group expenses under the same account called "nonprofit salaries."

nonprofit-accounting-chart-of-accounts-organizedMatthew knows keeping a chart of accounts organized is just as important as having one!

When creating your hierarchy, it's useful to think of how you need to track operations. This will help you decide whether you need to create specific accounts or a level of categories.

Subcategories

Subcategories are not absolutely necessary but do allow you to better organize your operations. For instance, you can make subgroups within the "bank" sub-category for every account related to your bank: for example:

  • Checking

  • Savings

  • Petty cash

  • Bank transfer

  • Deposit

Numbering

When applying numbers to your account, don't forget to leave enough space for future accounts that may arrive. For example, if you are doing cost accounting by project, you may need to follow track specific expenses, facilities, and equipment. So, for example, create accounts like:

  • 5201 Equipment project A

  • 5202 Equipment project B

  • 5213 Equipment project M

Keep It Readable

If you are not using a specific account category that may have come from a template or is no longer being used, delete it. For example, your nonprofit may not have any fixed land assets. If that is the case, there is no need to show the "Asset >Fixed Assets > "Land - Operating" category in your COA.

It's important to remember that no matter how simple your organization is, or how simple you want your chart of accounts to remain, some accounts cannot be deleted. If you were to do so, your accounting just would not work! Here are some examples:

  • Assets - Bank - Check deposit: If you accept checks, you will need to keep this category. 

  • Assets - Bank - Transfer: Similarly, if you have multiple bank accounts - such as a checking and a savings account - this category will be applicable.

  • Inventory Held for Sale: If you have an online store with goods inventory, you must keep this category.

  • Accounts Receivable: Client Account: As long as you receive any money from anyone, such as members, donators, or event ticket holders, you’d need to keep this account.

nonprofit-accounting-chart-of-accounts-example

Example Of A Simple Nonprofit Chart Of Accounts

Oftentimes the best way to visualize what a certain document will look like is to actually view a real-life example! In order to get you down the path of creating your own COA, we have provided a relatively simple example below that includes the most common subcategories. 

Please remember that because every organization is different, the information included in your COA will be unique to your nonprofit. However, the rows in bold below are seen in most nonprofit COAs and are likely to be needed in yours as well. 

We wish you great success on your COA creation journey! 

Menu - US

Real Category

Subcategory

Account Name - US

1010

Assets

Bank

Bank - Check deposit

1020

Assets

Bank

Bank - Transfer

1030

Assets

Bank

Checking Account

1040

Assets

Bank

Saving Account

1050

Assets

Bank

Petty cash

1110

Assets

Accounts Receivable (A/R)

Accounts Receivable - Client Account

1120

Assets

Accounts Receivable (A/R)

Accounts Receivable contact

1130

Assets

Accounts Receivable (A/R)

Accounts Receivable - Doubtful

1140

Assets

Accounts Receivable (A/R)

Grants Receivable

1150

Assets

Accounts Receivable (A/R)

Pledges Receivable

1160

Assets

Accounts Receivable (A/R)

Other Accounts Receivable

1170

Assets

Accounts Receivable (A/R)

Pledges Receivable

1210

Assets

Fixed Assets

Land - Operating

1220

Assets

Fixed Assets

Facility Construction

1230

Assets

Fixed Assets

Buildings - Operating

1240

Assets

Fixed Assets

Leasehold Improvement

1250

Assets

Fixed Assets

Furniture and Equipment

1260

Assets

Fixed Assets

Other Fixed Assets

1310

Assets

Accumulated Depreciation - Fixed Assets

Accum Depr - Land 

1320

Assets

Accumulated Depreciation - Fixed Assets

Accum Depr - Facility Construction

1330

Assets

Accumulated Depreciation - Fixed Assets

Accum Depr - Buildings

1340

Assets

Accumulated Depreciation - Fixed Assets

Accum Depr - Leasehold Improvement

1350

Assets

Accumulated Depreciation - Fixed Assets

Accum Depr - Furniture and Equipment

1360

Assets

Accumulated Depreciation - Fixed Assets

Accum Depr - Other Fixed Assets

1410

Assets

Other Assets

Other Asset Suspense

1420

Assets

Other Assets

Security Deposits Asset

1510

Assets

Other Current Assets

Inventory Held for Sale

1520

Assets

Other Current Assets

Prepaid Expenditures

1530

Assets

Other Current Assets

Undeposited Funds

2010

Liabilities

Accounts Payable (A/P)

Accounts Payable (A/P)

2020

Liabilities

Accounts Payable (A/P)

Invoice to be receive

2030

Liabilities

Accounts Payable (A/P)

Grants Payable

2110

Liabilities

Long Term Liabilities

Notes, Mortgages, and Leases

2110

Liabilities

Long Term Liabilities

Other Liabilities 

2110

Liabilities

Long Term Liabilities

Refundable Deposits Payable

2210

Liabilities

Short Term Liabilities

Short-term Notes - Credit Line

2310

Liabilities

Other Current Liabilities

Deferred Revenue

2320

Liabilities

Other Current Liabilities

Loans from Officers, Directors

2330

Liabilities

Other Current Liabilities

Current portion of Loans

2340

Liabilities

Other Current Liabilities

Payroll Liabilities

2350

Liabilities

Other Current Liabilities

Accrued Leave and Payroll

2360

Liabilities

Other Current Liabilities

Accrued Expenses

3010

Net Assets

Equity 

Perm. Restricted Net Assets

3110

Net Assets

Equity 

Temp. Restricted Net Assets

3210

Net Assets

Equity 

Unrestricted Net Assets

3310

Net Assets

Equity 

Net revenue - Profit (previous exercise)

3320

Net Assets

Equity 

Net revenue - Loss (previous exercise)

4010

Income

Business revenue

Service/Fee Revenue

4020

Income

Business revenue

Sales of Product Revenue

4030

Income

Business revenue

Interest Expense - General

4040

Income

Business revenue

Discounts/Refunds Given

4050

Income

Business revenue

Donation or direct public support

4060

Income

Business revenue

Membership Assessments

4070

Income

Business revenue

Inventory Sales

4080

Income

Business revenue

Special Event

4090

Income

Business revenue

Affiliated Org. Contributions

4100

Income

Business revenue

Gifts-In-Kind - Goods

4110

Income

Business revenue

Rental Income

4120

Income

Business revenue

Other Types of Income

4130

Income

Business revenue

Government Contract

4140

Income

Grants

Nonprofit Organization Grants

4150

Income

Grants

Government Grants

4160

Income

Grants

Corporate and Business Grants

4170

Income

Revenue

Advertising Sales

4180

Income

Contributions

Corporate Contributions

4190

Income

Contributions

Donated Prof Fees, Facilities

4200

Income

Grants

Foundation and Trust Grants

4210

Income

Contributions

Legacies and Bequests

4220

Income

Contributions

Other Contributions

4230

Income

Financial revenue

Revenue on exchange fee

4240

Income

Financial revenue

Interest-Savings, short-term CD

4250

Income

Financial revenue

Other Investment Revenue

4260

Income

Financial revenue

Dividend, Interest (Securities)

4270

Income

Financial revenue

Investments

5010

Expenses

Business expenditures

Cost of sales - inventory sales

5020

Expenses

Business expenditures

Contract Services

5030

Expenses

Business expenditures

Depreciation and Amortization

5040

Expenses

Business expenditures

Website/Technology Costs

5050

Expenses

Business expenditures

Books, Subscriptions, Reference

5060

Expenses

Business expenditures

Advertising Expenses 

5070

Expenses

Business expenditures

Awards and Grants

5080

Expenses

Business expenditures

Memberships and Dues

5090

Expenses

Business expenditures

Staff Development

5100

Expenses

Business expenditures

Business Expenses

5110

Expenses

Facility

Facilities and Equipment

5120

Expenses

Facility

Supplies

5130

Expenses

Facility

Outside Contract Services

5140

Expenses

Facility

Equip Rental and Maintenance

5150

Expenses

Facility

Rent, Parking, Utilities

5160

Expenses

Facility

Insurance - Liability, D and O

5170

Expenses

Facility

Property Insurance

5180

Expenses

Facility

Other Types of Expenses

5190

Expenses

Facility

Accounting Fees 

5200

Expenses

Facility

Fundraising Fees

5210

Expenses

Facility

Legal Fees

5220

Expenses

Facility

Printing, and Copying 

5230

Expenses

Facility

Travel and Meetings

5240

Expenses

Facility

Conference, Convention, Meeting

5250

Expenses

Facility

Janitorial Services

5260

Expenses

Facility

Postage, Mailing Service, Telecom

5270

Expenses

Legal expenditures

Taxes UBIT

5280

Expenses

Legal expenditures

Taxes - Not UBIT

5290

Expenses

Legal expenditures

Real Estate, Personal Prop Tax

5300

Expenses

Legal expenditures

Business Registration Fees

5310

Expenses

Legal expenditures

Fines, Penalties, Judgments

5320

Expenses

Salary

Salaries & Wages

5330

Expenses

Salary

Payroll Expenses

5340

Expenses

Salary

Medical Benefits

5350

Expenses

Salary

Other Benefits

5360

Expenses

Financial expenses

Bank Services

5370

Expenses

Financial expenses

Interest Expense - General

5380

Expenses

Financial expenses

Bank Interests

5390

Expenses

Financial expenses

Mortgage Interest

5400

Expenses

Financial expenses

Expense on exchange fee

5410

Expenses

Financial expenses

Additions to Reserves 

5420

Expenses

Other Expenditures

Ask My Accountant

nonprofit-accounting-chart-of-accounts-end

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Finance
Briana
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