Chart of Accounts: Sandwiches, Whiteout, Loans - Oh My...

Learning how to set up your chart of accounts for simple, successful, and consistent financial reporting can often be a mystery for nonprofits and small businesses alike. First, what is a chart of accounts and what really belongs in a chart of account? This puzzle often stop a nonprofit or small business in their tracks. A simplified chart of accounts that even the most non-financial member of their staff or board can understand is essential for success. Below are a few insights into how to begin to think about your chart of accounts. ​

What is an account?" Well, Dictionary.com defines the word account in two ways: 1. a report or description of an event or experience. and 2. a record or statement of financial expenditure or receipts relating to a particular period or purpose. So you might think that being a bookkeeper I'd chose definition number two, but in reality, I would choose definition one. Accounts, even in financial terms, are a report or description of an event or experience. If we remember that, we will remember what types of accounts belong in our chart of accounts.

In our chart of accounts, we group like experiences together into categories with financial terms: assets, liabilities, equity, income, and expense accounts. Everyone (nonprofits and businesses) uses these accounts, but often don't know these financial terms. So while those are the high level terms, there are more down to earth categories under each of those, which results in a "chart of accounts" - a list of account titles that fall into one of the financial categories above, while still being more universal to any business sector (for profit or not for profit). This helps us humans organize things in more common language. Some examples are listed below.

Asset Accounts - Bank Account, Building, Land, Vehicle, etc...
Liability Accounts - Credit Card, Loans, etc..
Income Accounts - Sales, Donations, Rental Income, etc...
Expense Accounts - Advertising, Utilities, Meals, Office Supplies, etc..

We don't need a long chart of account, but we need enough to help the most non-financially minded person understand reports and how that can help move their organization forward financially, while being helpful for reporting purposes (i.e. filing tax forms).

Do you need some help with your Chart of Accounts? As a nonprofit board member are you struggling to understand how the financial reports have an impact on the future of your programming? As a small business owner are you struggling to understand how financial reports are any different than your bank statements? These are common questions often rooted in the Chart of Accounts that I'd love to walk through with you. Please contact me! I'd love to hear your nonprofit or small business story, and help liberate your time and efforts to fulfill your mission, vision and strategic goals. 

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business adviser, or tax adviser with respect to matters referenced in this post. Candance Weaver Bookkeeping assumes no liability for actions taken in reliance upon the information contained herein.
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