If your programming runs from fall to spring/early summer, you most likely have a fiscal year that begins in mid-summer, and you most likely are presently in budget season. Here are two quick tips for organizing your Chart of Accounts.
What is a Chart of Accounts?
A Chart of Accounts is less a chart in the visual sense than it is a list of all the account names your organization uses within its accounting software, and the reports that flow from it, to record all your financial transactions. This includes both your operating accounts, your revenue and expenses, but also all your balance sheet accounts. Ideally, when crafting your annual budget, you use the Chart of Accounts as the outline for your budget document. The tips below focus specifically on organizing your expenses accounts.
Employees, Contractors, and Things
You probably already naturally group your expense accounts by department labels, such as artistic expenses, marketing expenses, and administrative expenses. But within each department grouping, you should have a separate account name for expenses that relate to payroll, expenses that are payments for outside contractors and service providers, and expenses that are payments for purchases of goods and supplies. Put another way, you shouldn’t co-mingle expenses for employee salaries with guest soloists (even if both are “artistic expenses”), and you shouldn’t co-mingle expenses for the photographer you hire for the orchestra petting zoo event with the branded merchandise you provide as giveaways.
Why? When it comes time to prepare your Form 990, you’ll need to separate all your expenses along these exact lines for the Statement of Functional Expenses. So if your Chart of Accounts is organized this way, you can book expenses this way throughout the year, making the data preparation for the Form 990 simpler.
Contractor Pay and Contractor Reimbursements
Within department groupings, you should have separate account names for expenses that are payments for your contractors’ services (guest soloists’ performance fees, perhaps called “Artist Fees”) compared to payments for your contractors’ reimbursable expenses (things like guest soloists’ rideshares from the airport, perhaps called “Artist Travel”). Read more about how this strategy will also make your year-end processes easier here.
