A Chart of Accounts is a financial organizational tool that provides a complete listing of every account in an accounting system. An account is a unique record for each type of asset, liability, equity, revenue, and expense. In the context of churches, a Chart of Accounts is not just a necessity but a vital tool for ensuring financial transparency, accountability, and effective management of resources.
By understanding and effectively utilizing a Chart of Accounts, churches can ensure they are managing their finances in a way that best supports their mission and serves their community.
Why is the Chart of Accounts Important for a Church?
A Chart of Accounts (COA) is essential for churches for several reasons:
1 – Financial Stewardship and Oversight
A well-structured COA allows the church to accurately track and report on how funds are being used, which is critical for financial transparency and accountability. It can also aid in ensuring that funds are used in accordance with donor restrictions and in alignment with the church’s mission and goals.
2 – Budgeting and Planning
A detailed COA makes it easier to create and manage budgets, as it provides a clear picture of all revenue accounts and expense categories. This helps the church plan for the future and make strategic decisions about resource allocation.
3 – Financial Reporting
A clear COA also helps in preparing financial information, such as the statement of financial position (balance sheet) and statement of activities (income statement). These statements are essential for providing information to church leaders, members, and donors about the church’s financial health.
4 – Regulatory Compliance
Churches, like other nonprofit organizations, are required to submit certain financial reports to regulatory bodies. In this case, a COA is necessary to compile the necessary information and ensures that the reports are accurate.
5 – Efficiency
COA is also essential to streamline the bookkeeping process, making it easier to record transactions accurately and consistently. This can save time and reduce the likelihood of errors.
6 – Donor Trust
Transparency in financial matters can help build and maintain trust with donors and members. When people see that the church is using funds wisely and responsibly, they may be more inclined to give.
Remember, every church’s COA will look a little different, depending on its size, structure, and specific activities. It’s important to design a COA that fits the church’s needs and to review and update it regularly to ensure it continues to serve its purpose effectively.
How does a Church Set Up a Chart of Accounts?
Setting up a Chart of Accounts for a church involves several key steps. It’s important to remember that the process might vary based on the specific needs and structure of your church, but the general guidelines below will be applicable in most cases:
1 – Identify Your Accounts
Start by listing all of the assets, current liabilities, equity, revenue, and expenses that your church has. Think about all the ways your church receives and spends money, as well as what assets and liabilities it holds. You may need to create sub-accounts under each main account to further categorize your transactions.
2 – Choose an Accounting System
You’ll need to decide whether you’re going to use a manual accounting system or an accounting software. For the latter, there are many options available, including ones specifically designed for religious organizations like churches and non-profit organizations.
3 – Set Up Your Chart of Accounts
Depending on your chosen accounting system, this will involve creating a new account for each item you identified in the first step. Make sure to use a logical and consistent numbering system.
4 – Add Opening Balances
Once your accounts are set up, you’ll need to input the opening balances for each account. This is usually the balance of each account at the start of the fiscal year.
5 – Train Staff and Volunteers
Everyone who will be entering transactions needs to understand the chart of accounts and how to use it. Consider holding a training session to go over the basics.
6 – Use and Maintain Your COA
Going forward, all financial transactions should be recorded using the new COA. It’s also a good idea to review your COA periodically to ensure it continues to meet your needs. You may need to add, delete, or merge accounts as your church’s activities evolve.
Example Chart of Accounts
Each financial transaction is recorded in at least two different accounts and the chart of accounts categorizes these transactions into five main types: assets, liabilities, equity, revenue, and expenses.
Here’s a basic sample chart of accounts for a church.
- Assets
- 1010: Checking Account
- 1020: Savings Account
- 1030: Cash on Hand
- 1050: Buildings
- 1060: Equipment
- 1070: Vehicles
- Liabilities
- 2010: Accounts Payable
- 2020: Accrued Expenses
- 2030: Loans Payable
- 2040: Mortgage Payable
- Equity
- 3010: Unrestricted Net Assets
- 3020: Temporarily Restricted Net Assets
- 3030: Permanently Restricted Net Assets
- Revenue
- 4010: Tithes and Offerings
- 4020: Special Offerings (Mission, Building Fund, etc.)
- 4030: Fundraising Income
- 4040: Rental Income
- Expenses
- 5010: Salaries and Wages
- 5020: Benefits
- 5030: Utilities
- 5040: Office Supplies
- 5050: Repairs and Maintenance
- 5060: Ministry Expenses
- 5070: Mission Support
- 5080: Mortgage or Rent Payment
Please note that this is a very basic chart of accounts and the actual might include many more accounts depending on the complexity and size of the church.
Creating a Chart of Accounts with ACCOUNTS
Creating a chart of accounts using ACCOUNTS by Software4Nonprofits is both easy and beneficial for several reasons:
- User-Friendly Interface: The software has a simple, intuitive interface that makes it easy to navigate and use, even for those with limited accounting or technical knowledge. The steps to create a chart of accounts are clearly laid out, and the process is straightforward.
- Customizable: ACCOUNTS allows you to customize your chart of accounts to suit the specific needs of your organization. You can easily add, edit, or delete accounts, and you can assign each account a unique number, name, and type.
- Tax Line Assignment: If you’re in the U.S. or Canada, the software allows you to assign a tax line to each account. This feature can simplify the preparation of your tax return and ensure that your accounts align with the relevant tax categories.
- Comprehensive Reporting: Once your chart of accounts is set up, ACCOUNTS makes it easy to generate a variety of financial reports. These reports can provide valuable insights into your organization’s financial health and help you make informed decisions.
- Support and Resources: Software4Nonprofits provides a range of resources to help you use their software effectively, including a detailed user guide, video tutorials, and responsive customer support. This means that help is readily available if you encounter any difficulties while creating your chart of accounts.
- Designed for Nonprofits: Unlike many other accounting software options, ACCOUNTS is specifically designed for nonprofit organizations. This means it includes features and options that are relevant to nonprofits, such as the ability to track donations and grants.
In summary, ACCOUNTS by Software4Nonprofits makes it easy to create a chart of accounts by providing a user-friendly, customizable, and supportive environment that caters specifically to the needs of nonprofit organizations.
Conclusion
Setting up a Chart of Accounts for a church involves a careful balance. You want the COA to be comprehensive enough to capture all financial activities, but also straightforward enough to be easily understood and used by those responsible for bookkeeping and accounting. Also, it’s essential to get input from people who understand the church’s financial statements, like the treasurer or finance committee, when setting up the COA.
