Not-for-Profit Organization Accounting: Chart of Accounts with Example COA Template and Account Hierarchy

Posted In | Finance | Accounting Software

Introduction to Accounting for Not-for-Profit Organizations

Not-for-profit organizations are entities that are established to serve a particular purpose or mission, usually charitable in nature. Unlike businesses and other organizations that are focused on generating profits and revenues, non-profits are typically formed to provide social, educational, or other services to the public. As such, their accounting procedures and financial management are distinct from those of other organizations. Accounting for not-for-profit organizations is based on the same principles as accounting for profit-oriented corporations, but it requires a different approach. Non-profits must be able to accurately track and report their financial activity, and comply with specific regulations and standards specific to their industry. The chart of accounts (COA) is an essential tool for non-profits to manage their finances and ensure compliance. In this article, we will discuss the importance of the COA, provide an example template and account hierarchy for not-for-profit organizations, and outline best practices for using the COA to accurately track revenue and expenses.

 

 

Understanding the Chart of Accounts (COA) and Its Importance in Financial Management

A chart of accounts (COA) is a list of all the financial accounts used to record a company’s transactions. This includes accounts for assets, liabilities, revenue, expenses, and equity. The COA is used to categorize financial information and make it easier to understand and interpret. By using a COA, the financial manager or accountant can quickly and easily see how the company is performing.

For not-for-profit organizations, the COA is even more important. They rely on donations, grants, and other forms of funding, and need to be able to track every penny they receive and spend. The COA provides an organized way of doing this, and allows the organization to ensure that all of its financial activities are in compliance with regulations specific to the not-for-profit industry.

The COA is also used to create reports that can be used to communicate the financial situation of the organization to stakeholders, such as donors, funders, and board members. This is important because it allows the organization to demonstrate its financial health and accountability.

 

Example COA Template and Account Hierarchy for Not-for-Profit Organizations

The chart of accounts (COA) is the foundation of a not-for-profit organization’s financial management system. It includes all of the accounts that are used to record financial transactions. The COA also serves as a way to organize the organization’s financial information and report on the financial position of the organization.

An example COA template for a not-for-profit organization is shown below:

• Assets: Cash and Cash Equivalents, Accounts Receivable, Inventory, Investments, Prepaid Expenses, Property and Equipment
   
• Liabilities: Accounts Payable, Accrued Expenses, Deferred Revenue, Long-term Debt
   
• Equity: Contributions, Net Assets
   
• Revenues: Grants and Contributions, Program Service Fees, Other Income
   
• Expenses: Program Service Expenses, Fundraising Expenses, Administrative Expenses, Depreciation
   

The account hierarchy is the structure that organizes the COA into categories, sub-categories, and sub-sub-categories. This allows the financial manager to easily identify and classify accounts. Each account within the account hierarchy is assigned a number that corresponds to its place within the hierarchy. The example COA template above shows the account hierarchy for a not-for-profit organization.

 

Best Practices for Using the COA to Accurately Track Revenue and Expenses, and Comply with Regulations Specific to the Not-for-Profit Industry

Using a chart of accounts (COA) to track financial performance is essential for not-for-profit organizations. It allows them to accurately measure and report their financial performance and comply with regulations specific to the not-for-profit industry. The following are some best practices for using the COA to achieve these objectives:

• Ensure that the COA is comprehensive and up to date. It should include all of the accounts that are relevant to the organization and its activities.
   
• Understand the purpose of each account, and how it should be used in the organization’s financial management. This will ensure that the information reported is accurate and meaningful.
   
• Make sure that the COA is organized in a logical and understandable way. This will allow for easy navigation and understanding of the financial information.
   
• Regularly review the COA to identify any changes or additions that need to be made. This will ensure that the COA is always up to date and compliant with the regulations specific to the not-for-profit industry.
   
• Ensure that the COA is properly maintained and updated. This will allow for accurate reporting of all financial transactions.
   

By following these best practices, not-for-profit organizations can ensure that their COA is comprehensive, organized, and up to date. This will allow them to accurately track revenue and expenses, and comply with regulations specific to their industry.