How to Establish a Chart of Accounts

When creating your COA it is important to use COA account numbers, these act as a designation system to identify where items from your bank accounts are assigned. (Don’t confuse these with your bank account numbers, those will be a separate entity altogether.) COA account numbering will aid you tremendously when you begin pulling reports. 

When creating your COA account numbers use the following guide:

These will act as headers for a group of COA accounts. For example, 7200 would act as the header for expenses. Then 7201 would designate salaries, 7202 PR Taxes, 7203 Employee Benefits, etc. 

The amount of subaccounts you have will help determine how many digits your account numbers are. You can use four to seven numbers for each account. For example, a smaller organization may choose to have four digit accounts 1000-9000 because they have fewer accounts. 

A COA will have several major categories. These major categories will act as headers for your minor categories, and usually sort your financial information into revenue, expenses, assets, liabilities, and net assets.  

Assets- Include cash (bank Accounts, petty cash, paypal), accounts receivable, investments, and prepaid expenses, accrued revenues, inventory, fixed assets, and net of accumulated depreciation.

Liabilities- Include accounts payable, accrued liabilities-(payroll, other), and credit cards.

Net assets- Include unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets.
 

Revenue

Is the amount of money brought into a company by its business activities. Non-profit organizations earn income/revenue by providing a service. Other sources of revenues include interest on investments and contributions. 

Contributions

Direct Contributions include (individual donations, board donations, corporate donations), Donated Goods and Services (professional services, facilities, gifts in kind), Non-governmental grants (corporate, foundation, NPO), Government grants (Federal, State, Local)

Earned Revenue

Government Agencies (Federal, State, Local), Program service fees, Revenue from investments (interest, dividends, realized gain (loss), Special Events

Expenses

Are costs that a business incurs through its operations to earn revenue.

Examples include grants to other organizations, salaries & related expenses, contract service expenses (legal, accounting, etc.), non-personnel expenses (supplies, telephone, postage, etc.), facility & equipment, travel & meeting, and other (client specific, membership dues, bank fees, etc.)

Once you have a good draft of your COA pull out an IRS Form 990  and look at your revenue and expense accounts to make sure you have all the information you will need to complete the form. Your accounts do not have to have the exact names as the Form 990 as long as you know where they correspond on the form 

QuickBooks links

How to turn account numbers: https://qboe.custhelp.com/app/answers/detail/a_id/1117/kw/chart%20of%20accounts/r_id/103898 

Merging accounts: https://qboe.custhelp.com/app/answers/detail/a_id/1221/kw/merging%20accounts/r_id/103898#ext_accounts 

Deleting special and default accounts: https://qboe.custhelp.com/app/answers/detail/a_id/1221/kw/merging%20accounts/r_id/103898#ext_accounts 

IRS Form 990 can be found at: 
http://www.irs.gov/pub/irs-pdf/i990.pdf 

 

Renata Poe Massie, Content Writer for Jitasa 

 

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