As discussed in the previous post the main purpose of the chart of accounts is to allow the production of financial reports that can be easily analysed so that better decisions can be made.  Below are some tips to help you set up your chart of accounts.  Note that if you already have a chart of accounts, these tips can also help you to review and update them.

  • Are the chart of accounts linked to your strategic and business objectives of your organisations?  For example, if you have a key performance indicator to increase donations by 10% does your chart of accounts have a separate account for donations?  If your donations are allocated to a general income account that also is used for enrolment fees, grants and government subsidies then tracking the increase in donations requires additional reports to be prepared.
  • Do you have accounts you need to specifically track?  As an example, if you need to monitor mobile telephone expenses then set up a separate account and not consolidate with other phone charges such as for your landline, fax or internet costs.
  • Are the amounts material and relevant?  Unless there is good reason such as noted above, you shouldn’t need to track individual details for accounts that are small or immaterial.  For example, if your organisation has a budget of $500,000 you probably don’t need to have a separate account for an expense or income amount that may be only a few hundred dollars.
  • Are your financial reports easy to understand and can be used to make decisions?  If so, then you are likely to have a good chart of accounts.  If not, you need to review and update them.
  • If you require additional details from your accounting system, are they easy to obtain.  For example, if you require some additional information but it is difficult and time consuming to extract from the accounting system then this can indicate your chart of accounts needs to be changed to make it easier to get this information.    

These points are just a guide as there may be other issues you need to allow for.  As an example, some industries use a common or similar chart of accounts as it makes it easier for government agencies to compare the performance of the different organisations.

In addition, depending on the size and structure of your organisation there may be some external audit requirements that may need to be complied with.  Furthermore, if you receive grants or government funding often you will be required to include specific financial information in the acquittal so the best way to track these items is to modify the chart of accounts so you can easily record this information.

Take the time to review the above points and if needed update your chart of accounts so that the financial reports assist you to make more effective and better decisions in a timely manner for your organisation.