Nonprofit Organization Accounting: COA Template & Account Hierarchy

Posted In | Finance | Accounting Software | Chart of Accounts | Non Profit Organizations

Nonprofit organizations, like their for-profit counterparts, need to maintain accurate and organized financial records. A key component of this process is the chart of accounts (COA), which serves as a roadmap for recording and categorizing financial transactions. In this article, we will explore the importance of a well-structured COA for nonprofit organizations, provide an example COA template, and discuss the hierarchy of account categories.

 

Importance of a Well-Structured COA for Nonprofits

A well-designed COA is crucial for nonprofit organizations for several reasons:
 

1. Compliance: Nonprofits must adhere to specific accounting rules and regulations, such as the Financial Accounting Standards Board (FASB) guidelines and the Generally Accepted Accounting Principles (GAAP) for nonprofits. A COA enables organizations to maintain compliance by ensuring that transactions are properly recorded and categorized.
    

2. Financial Reporting: Nonprofits need accurate financial reports to demonstrate financial health to donors, board members, and other stakeholders. A structured COA ensures that transactions are grouped in a way that facilitates the preparation of these reports.
    

3. Budgeting and Decision-making: A well-organized COA helps nonprofits monitor expenses and revenues, allowing for more effective budgeting and strategic decision-making.

 

Example COA Template for Nonprofits

A typical nonprofit organization's COA includes five main categories:
 

1. Assets: Resources owned or controlled by the organization, such as cash, accounts receivable, property, and equipment.
    

2. Liabilities: Obligations and debts owed to external entities, including accounts payable, loans, and accrued expenses.
    

3. Net Assets: The residual interest in the organization's assets after liabilities are deducted, representing the organization's equity. Net assets are often classified into three categories: unrestricted, temporarily restricted, and permanently restricted.
    

4. Revenues: Inflows of resources resulting from the organization's primary activities, such as donations, grants, and program service revenues.
    

5. Expenses: Outflows or depletion of resources incurred in the course of achieving the organization's mission, including program expenses, administrative costs, and fundraising expenses.

 

Account Hierarchy

The account hierarchy within each category is typically organized by increasing specificity. For example:

 

1. Assets:

   • 1000: Current Assets
      

   • 1100: Cash

     • 1110: Checking Account

     • 1120: Savings Account
        

   • 1200: Accounts Receivable

     • 1210: Grants Receivable

     • 1220: Pledges Receivable

 

2. Liabilities:

   • 2000: Current Liabilities

   • 2100: Accounts Payable

   • 2200: Accrued Expenses

 

3. Net Assets:

   • 3000: Unrestricted Net Assets

   • 3100: Temporarily Restricted Net Assets

   • 3200: Permanently Restricted Net Assets

 

4. Revenues:

   • 4000: Donations and Grants

   • 4100: Individual Donations

   • 4200: Foundation Grants

   • 4300: Program Service Revenues

 

5. Expenses:

   • 5000: Program Expenses

   • 5100: Education Programs

   • 5200: Health Programs

   • 5300: Administrative Expenses

   • 5400: Fundraising Expenses

 

An effective COA is a critical tool for nonprofit organizations, enabling them to maintain compliance, produce accurate financial reports, and make informed decisions. By understanding the importance of a COA and implementing a clear account hierarchy, nonprofit organizations can better manage their financial resources and ultimately fulfill their missions.