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 basic ledger checklist. With these accounts, you group particular classes, similar to:

  • Belongings: What you personal—similar to money, receivables (debtors), stock, and glued property.
  • Liabilities: What you owe—similar to payables (collectors), loans, accrued bills, and deferred earnings.
  • Funds (or fairness): Represents the online 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 many others.

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

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

The COA is numeric and usually follows a standardised order at a excessive stage. This makes it simpler to kind 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:

  • 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 study every account class and devise the account buildings that want to take a seat 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 arduous to see shortly and clearly what is occurring.

2. Construction your property 

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

Present property

Present assets usually comprise classes similar to:

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

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

Mounted property

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

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

  • Quick-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 a couple of 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 earnings funds. Nevertheless, 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 

Evaluation the primary kinds of earnings acquired by your NPO. It could be finest in the event you cut up these into separate accounts.  

You need to 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 cut 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 embrace salaries, different prices of employees 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 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).

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 subject.

9. Restricted and unrestricted fund evaluation

Should you obtain grants or increase funds for particular initiatives, you’ll usually 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.

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

10. Preserve your chart of accounts

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

Nevertheless, you may also need to assessment the COA in the event you’re placing in a brand new finance system or if there may be progress or a change in reporting necessities.

Remaining ideas: Evaluation 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, chances are you’ll 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.