Chart of Accounts for Nonprofits: What It Is and Why You Need One
What is a Chart of Accounts?
When it comes to nonprofits, a chart of accounts is a list of all accounts used by a business in the general ledger. This list categorizes each class of items. The accounting software uses these categories to aggregate transactions into the company’s financial statements and reports, such as the balance sheet, income statement, and statement of cash flows.
In short, a nonprofit chart of accounts organizes financial information.
Over time, and without the right accounting software, traditional accounting systems tend to produce unwieldy charts of accounts (CoA) with thousands—if not tens of thousands—of unique account numbers. That is because most financial solutions use a hard-coded structure for the chart of accounts. For example, to track receivables across 6 locations, with 5 departments each, and 15 projects, you’d need 450 account code combinations—and that’s before you get started with accounts for expenses.
Before long, you end up with a complicated, unmanageable set of codes. Adding a new location, department or program would force the finance team to create dozens or hundreds of additional accounts. At Sage Intacct, we understand how complicated nonprofit accounting can become. Fortunately, there are simple ways to make your nonprofit accounting faster and more efficient.
As accounts become unmanageable, many nonprofit organizations find themselves having to choose between creating a sprawling, difficult-to-manage chart of accounts or not tracking all of the information that they would like. Luckily for today’s nonprofit organizations, there is a better way to organize your data: through a dimensional chart of accounts.
A dimensional nonprofit chart of accounts offers nonprofit organizations many advantages, including:
- Reduced complexity and higher efficiency in transactional data entry
- Greater ability to slice and dice reports without spreadsheets
- More-informed decision making with real-time analysis
- Wider and deeper financial visibility with greater operational context
- Increased transparency for donors
- Better visibility into missional impact
Let’s take a closer look at the benefits of a dimensional account and how exactly they can guide your nonprofit accounting.
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A Dimensional Chart of Accounts Reduces Complexity
Modern cloud financial management solutions, like Sage Intacct, use a table-driven architecture to structure your financial and operational data around logic-based “dimensions.” Dimensions offer an entirely new way to manage your general ledger, making it much easier for you to set up and use your nonprofit chart of accounts.
In Sage Intacct, nonprofit organizations can define up to eight dimensions to use in accounting and reporting. Some of these dimensions include program, department, location, grant, project, and fundraising. You can track revenue, assets, and expenses for any of these dimensions, while simplifying your chart of accounts.
Multi-dimensional accounting lets nonprofit organizations keep it simple—you only need to set up your primary account codes. As you open new locations, new funds, or new programs, there’s no need to add hard-coded segment combinations to create account numbers. You can use dimensions for any transaction—general ledger, receivables, payables, time, revenue management, fixed assets, payroll, and more.
A dimensional chart of accounts eliminates the need to create so many account numbers. For example, instead of creating fixed asset accounts for each of your locations in the GL, you would simply set up a single fixed asset account and tag each asset with “location.” You would then use the “location” dimension to filter assets by location in your real-time reports.
Goodbye Spreadsheets! Tag Transactions to “Twitterize” Your Data
Having a dimensional chart of accounts means you no longer need to pull information out of your accounting system and manipulate it in a spreadsheet to get the expense report you want. Dimensions let you track performance more closely and search for information instantly.
Think of dimensions within your chart of accounts like hashtags on Twitter—they make it easy to search and sort data for reporting with meaningful context. Simply “tag” transactions with dimensions so you can slice and dice your data later and produce the financial reports you need.
By adding dimension filters at the time you produce reports, you can show exactly the information you need in the format you need it. You can then save those filters and format settings to repeatedly produce reports that fit your needs.
Before adopting Sage Intacct, Georgetown Visitation Preparatory School couldn’t prepare consolidated reports and the finance team spent at least six hours each month wrestling with Excel spreadsheets. Now, they instantly produce over 100 financial reports–including consolidated reports across their operating, plant, and capital campaign funds, as well as reports for each individual entity, department, project, grant, and endowment.
Dimensions Enable More Insightful Financial Analysis
Because dimensionality lets you organize information by the attributes that matter most to your mission, a dimensional chart of accounts empowers you to perform more meaningful analysis of organizational performance. You can track project expenses or results of fundraising efforts with ease. With multi-dimensional analysis, you can also increase visibility by drilling down from a top-level dashboard to see granular transaction details.
Dimensions will help you analyze financial performance across one or more entities in a real-time dashboard. In your nonprofit chart of accounts, you can tag projects in transactions, then analyze financial performance, project by project. Quickly compare expenses and revenue between programs, locations, and more.
Organizations can even rename dimensions to better reflect their structure and mission. Many nonprofit organizations rename the “Class” dimension to a “Fund” dimension and then use it to track revenue and expenses against different funds.
As your organization changes, add dimensions to track new things that become important to your board or donors. For example, the Hilton Foundation used to organize its budget reports by expense categories. Then one board member preferred to monitor budgets by department. Using Sage Intacct, the finance team easily created a report providing budget vs. actuals by the dimension of department.
Added Operational Context Improves Visibility
Sage Intacct’s nonprofit chart of accounts offers a statistical account feature that allows you to bring non-financial operational data into your financial reporting. Any traditional general ledger should contain the financial information needed to create GAAP financial reports. But by enhancing the GL with non-GAAP statistical data, nonprofits can also track and report on operational outcomes.
By applying dimensions to the operational data, you can create more contextually rich reporting that includes critical outcome and performance metrics for your reports. This increases overall visibility and provides organizational decision-makers with a more complete picture of performance.
Input contextual data that fits your organization
- Program attendance
- Monthly Events
Gateway Church uses statistical accounts to marry financial and attendance data for analysis. The church tracks weekly in-person attendance and online viewers, then adds a statistical journal entry in Sage Intacct. They run the attendance data against weekly revenue to calculate the average amount given per adult attendee and then analyze this metric by location to compare church campuses for budgeting.
Dimensional Reporting Increases Transparency with Donors
Combining financial performance data with real-world outcome metrics produces reports that truly reflect your organization’s success in accomplishing its mission. Multi-dimensional analysis also increases your transparency and visibility with your donors by bringing together financial, operational, and impact data that tell donors the complete story of how your organization makes an impact.
As you can see, a dimensional nonprofit chart of accounts can be extremely valuable to nonprofit organizations everywhere. To leverage the power of multi-dimensional accounting, organizations need to use a modern cloud financial management solution. Not only will dimensionality greatly simplify the lives of your finance team, it will also empower program managers and executives with greater insight and help your organization support a more compelling story for donors.Further Reading
- FP&A 101: Your Chart of Accounts Just Got More Interesting
- Twitterize your Chart of Accounts - The Data-Driven CFO
- Three Emerging Technologies Poised to Reshape Accounting and Financial Management
A native Texan, Joan has over 25 years of experience in the accounting, technology, publishing, and nonprofit fields. Bringing her experience as a nonprofit financial leader to Sage Intacct, Joan has been instrumental in creating solutions, and providing support and best practices that help ensure nonprofits achieve their mission.
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