Chart Of Accounts For Nonprofit Organizations

The Chart of Accounts Nonprofit organizations each have a governing body, commonly known as a Board of Directors, which is comprised of various members depending on their knowledge, skills, and connections within the community being served by the nonprofit. They are the body which determines much of the direction in which the organization will move. The board approves compensation plans, marketing strategies, and has general oversight of the organization as a whole. Therefore, it is important that the financial information presented to the board be clear and accurate. Having a chart of accounts can help to accomplish this goal (Renz & Herman, 2010). A chart of accounts is essentially a listing of all the accounts used for any purpose by

This allows the board of directors to see more of a big picture version of the financial state of the organization. The chart of accounts acts as something like the trunk of a tree, anchoring various accounts and their sub-fields to the overall financial picture of the organization. Having this view of information makes it possible to see trends and the general flow of money into and out of the nonprofit. Despite the benefits of having a chart of accounts, there is a challenge related to the method by which transactions are allocated to the various accounts. It is possible, depending on who is coding the transactions, to have similar expenses coded differently. Therefore, it is imperative that there be crosschecks and communication between all parties to standardize the allocation of revenues and expenses within the general ledger. Using the chart of accounts through which to view revenues and expenses, the board is able to see which areas of the organization are cost centers versus those that are revenue generating. This knowledge can assist the board in determining which way to steer the organization based on the success or struggle of that particular piece of the chart (Zietlow, Hankin, & Seidner,