By Erik Luoma, CPA
It is important to properly set up a chart of accounts. A great resource for any association looking to beef up their chart of accounts is the ASAE Standard Chart of Accounts for Associations (www.asae.org). I highly recommend everyone download and read the entire document as it is only a few pages long and will discuss many of these concepts in much greater detail.
If your association is using a basic four digit chart of accounts, then you are missing out on some serious financial analytical power! With a detailed chart of accounts, no matter what accounting software you are using, you should be able to download your account balances to a spreadsheet and perform any number of useful analytics on your association’s financial health.
So what does a good chart of accounts look like?
A detailed chart of accounts for an association will include: a basic four digit account number; a three digit function code; a two digit program code; and if needed, a two digit department code. If fund accounting is used, then an additional two digit fund code will also be needed. A chart of accounts with this much detail may seem like overkill if you are a small association, but it is much harder to break this information down into smaller buckets than it is to sum it up into larger categories.
The basic four digit account structure used by many different types of organizations is as follows:
1000 – 1999 = Assets
2000 – 2999 = Liabilities
3000 – 3999 = Equity
4000 – 6999 = Revenue
7000 – 9999 = Expense
Each account number should be assigned in a way that groups similar accounts together. For example, cash accounts could be accounts 1001 through 1099 and investment accounts could be 1101 through 1199 (see page 3 in the ASAE Standard Chart of Accounts for Associations). It is also a good idea to leave some gaps between the basic four digit account numbers. When new accounts are created, you can assign numbers which fit nicely into the numbering used for similar accounts (this is especially useful when sorting by account numbers in Excel). For example, your initial chart of accounts set up could skip account numbers by 10’s. All cash accounts could be 1010; 1020; 1030 and so on. Then when new cash accounts are created you can use accounts 1015; 1025; 1035 or 1011; 1012; 1013 and so on. This way you can keep new accounts grouped with other similar accounts.
A three digit functional code will enable you to easily group your functional revenues and expenses together. Some examples of functional codes from the ASAE’s Standard Chart of Accounts are listed below.
Meetings – 100
Education – 200
Trade Shows – 300
Publications – 400
Certification – 500
Government Relations – 600
Management and General – 800
Fundraising – 900
A two digit program code will give you a revenue and expense breakdown for specific programs within a function. For example, account code 100-01 could be annual meetings; 100-02 could be regional meetings; and 100-03 could be board meetings.
A two digit department code will give you the ability to breakdown your revenues and expenses by department. The ASAE provides example department codes such as 01 for the education department; 02 for the meetings department although many smaller associations may not have a need for this level of detail.
These additional account number extensions can be arranged in whatever way your accounting system accepts or whatever way makes the most sense to you.
So what can you do with all these extra numbers?
Extending your chart of accounts system beyond the basic four digit structure can provide powerful additional tools to assist you in making the most informed financial decisions.
I hope this blog helps to acquaint you with the benefits of a detailed chart of accounts and hopefully encourages you to implement the account extensions. A detailed chart of accounts is extremely useful when analyzing your association’s financial health and will give you the kind of information you need on a regular basis to make the best financial decisions for your association..