Nonprofit chart of accounts 101: How to get started and examples to follow

Keeping careful track of your nonprofit organization’s financial health is crucial to fulfilling your mission, and a well-structured Chart Of Accounts (COA) serves as the backbone of your financial management.

Solid financial stewardship relies on your leaders being equipped with a nonprofit chart of accounts that is well organized.

It should reflect your transactions accurately, empowering you to manage your organization’s finances, transparency, and accountability effectively. 

Here’s what we’ll cover

What is a chart of accounts for nonprofits?

A nonprofit chart of accounts is a systematic listing of all account titles and numbers in an organization’s accounting system or general ledger.

It provides an organized structure to track income, expenses, assets, and liabilities.

This structure helps support and categorize financial transactions, making it easier to manage and report on your finances.

What is a segmented or dimensional chart of accounts?

A segmented or dimensional chart of accounts involves breaking down the account structure into multiple segments or dimensions. This could include categories like program areas, funding sources, or geographic locations.

For example, a nonprofit might have separate dimensions for different programs such as education, health services, and community development, allowing for detailed tracking and reporting of revenues and expenses associated with each segment.

This article will cover dimensional COA and why they can be beneficial in more detail below.

What is a unified or linear chart of accounts?

In contrast, a unified or linear nonprofit chart of accounts presents a simpler, more streamlined approach.

It combines all accounts into a single list without additional segmentation.

While this can make management easier, it could limit the ability to analyze financial data in depth.

A unified chart is typically better suited to smaller nonprofits or organizations with fewer programs and funding sources.

What are the five main account types in a nonprofit chart of accounts?

A comprehensive COA consists of five primary account types:

Assets

Assets are resources owned by your nonprofit that have economic value.

They can be classified into current assets (cash, accounts receivable) and non-current assets (property, equipment).

Tracking assets accurately is important to understand and manage your organization’s financial health.

Liabilities

Liabilities represent obligations your nonprofit owes to others, such as loans, accounts payable, or accrued expenses.

Effectively tracking and understanding liabilities helps organizations manage debts and maintain financial stability.

Net assets

Net assets indicate the difference between your total assets and your total liabilities.

This category is often divided into unrestricted, temporarily restricted, and permanently restricted funds, reflecting the limitations on how the funds can be used.

Revenue

Revenue accounts cover all income sources, including donations, grants, program fees, and fundraising events.

Accurately categorizing revenue helps nonprofits track income sources and assess financial sustainability.

Expenses

Expense accounts capture all costs incurred by the organization.

This includes program expenses, administrative costs, staff costs, and fundraising expenses.

Detailed tracking of expenses is vital for budget management and financial reporting.

Why a nonprofit chart of accounts is essential

Unlike for-profit organizations, nonprofits have unique requirements related to funding sources, restrictions, and reporting, which a chart of accounts needs to address.

It defines classes of items your nonprofit accounting software uses to aggregate transactions into your financial reporting. Its structure determines how financial data gets entered and how it will be extracted for reporting.

Without an efficient and accurate chart of accounts, managing nonprofit finances, including donations, grants, and fund accounting, can be chaotic, if not impossible.

Because of this, it’s essential to create a chart that reflects your organizational needs while adhering to broadly accepted accounting principles for nonprofit entities.

Key financial reports in your chart of accounts

Your nonprofit’s chart of accounts forms the basis for all of your financial data.

There are four core financial reports that your chart of account should help inform:

Statement of activities

This is an essential budgeting resource, and should detail your organization’s revenue, expenses, and net assets.

Statement of financial position

This is a balance sheet, and should outline your assets, liabilities, and net assets, helping you review and improve your nonprofit’s financial health.

Statement of cash flows

This should look at how your financial activities, including investments and operational expenses, impact your cash flow.

Its purpose is to help you keep your cash flow in a good place by managing your outgoings and fundraising effectively.

Statement of functional expenses

This should map out how your nonprofit is using its funding in order to help you achieve your mission, looking at your program, administrative, and fundraising costs.

The benefits of chart of accounts for nonprofits

Organized financial management

A well-structured COA provides clarity and organization, allowing for efficient tracking of financial transactions.

Improved reporting

Nonprofits must report financial information to stakeholders, including donors, grantors, and regulatory agencies.

A COA simplifies the reporting process, ensuring compliance with legal requirements.

Budgeting and planning

A detailed COA helps create accurate budgets by providing a clear picture of expected revenues and expenses.

Performance measurement

With the right structure, a COA allows nonprofits to evaluate the performance of various programs and initiatives, ensuring resources are allocated effectively.

Enhanced transparency

A transparent chart of accounts builds trust with stakeholders by providing clear and detailed financial information.

Nonprofit chart of accounts for 990 and GAAP reporting

Nonprofits in the US must adhere to the Generally Accepted Accounting Principles (GAAP) and report financial information using Form 990.

A well-structured COA will help your organization comply with these standards, including the following key aspects:

Detailed revenue reporting

The COA should categorize revenue sources clearly to reflect different funding streams accurately.

Expense classification

Nonprofits must report expenses by function (program, management, fundraising) on Form 990, which can be achieved through a detailed COA.

Net asset reporting

Understanding and categorizing net assets helps organizations report the nature of their funds accurately.

Having a chart of accounts that lines up with both GAAP and Form 990 will help make sure you stick to nonprofit accounting standards, while enhancing your financial transparency.

Sample chart of accounts for nonprofits

When setting up your chart of accounts, it’s essential to adopt a logical numbering system that reflects the structure of your organization’s finances.

Four-digit account numbers may be sufficient for small to medium-sized organizations with reasonably straightforward accounts.

Usually, assets begin with the number 1; liabilities with 2; net assets with 3; revenue with 4, 5 or 8; and expenses with 6, 7 or 9.

The website Nonprofit Accounting Basics has more detailed information.

Have a look at our sample chart of accounts for a nonprofit to get a feel for how you might number and categorize your accounts:

Assets

• 1000 – Current assets
• 1100 – Checking
• 1200 – Accounts receivable
• 1300 – Non-current assets
• 1400 – Property
• 1500 – Equipment

Liabilities

• 2000 – Current liabilities
• 2100 – Accounts payable
• 2200 – Short-term loans
• 2300 – Long-term liabilities
• 2400 – Long-term debt

Net assets

• 3000 – Unrestricted net assets
• 3100 – Temporarily restricted net assets
• 3200 – Permanently restricted net assets

Revenue

• 4000 – Earned revenue (e.g. contracts and fees for service, ticket sales)
• 5000 – Contributed revenue (e.g. federal or local government support)
• 8000 – Other revenue accounts (e.g. contributions with donor restrictions)

Expenses

• 6000 – Personnel expenses (e.g. salaries, vacation pay, bonuses)
• 7000 – Non-personnel expenses (e.g. advertising, bank fees, insurance)
• 9000 – Other expenses (e.g. one-off operational or campaign costs)

The structure in this nonprofit chart of accounts example allows for easy identification and reporting.

Note that it’s helpful to cluster similar types of accounts, giving them numbers that are close together, as it’ll make it easier to find and pull related financial data.

You’ll see that under “Assets,” all current assets (including cash and accounts receivable) start with 1, and non-current assets (including property and equipment) start with 2.

Nonprofit chart of accounts best practices

To maximize the effectiveness of your chart of accounts, consider the following best practices:

Keep it simple

Avoid overcomplicating the COA; a clear and concise structure is easier to manage.

For example, costs like social media advertising, paid magazine content, online link building to your website, and any design costs could all be clustered in a general “marketing costs” account.

Be consistent

Use consistent naming conventions and numbering systems throughout the COA to ensure clarity.

It’s important that the wording and numbers used in your planning and budgeting align with your accounting and reporting, including your COA.

This will facilitate better overall financial management, allowing you to compare performance to budget effectively and empower you to make better, data-driven decisions.

Consider applying subcategories

While you want to keep your COA as simple as possible, subcategories could be applied to certain account categories if you think it will help you keep tabs on important information.

For example, to give you a more granular view of accounts related to your bank category (checking, savings, transfers etc.).  

Review regularly

Periodically review and update the COA to reflect changes in the organization’s structure or funding sources.

Also, remove any unused accounts from your COA to keep it tidy, organized, and up-to-date.

Train your staff

Ensure that the staff responsible for financial reporting understand the COA and its importance in the accounting process.

It’s also a good idea to work with a nonprofit accountant with expertise in your sector to set up your COA and invest in smart software that is easy for your team to use.

Incorporate segmentation wisely

If your organization has diverse programs or funding sources, consider implementing a segmented chart of accounts to capture detailed financial data (more on that in the next section).

Why growing nonprofits should consider a dimensional chart of accounts

Because the chart of accounts impacts nearly every task the finance team needs to perform, its structure should align with your mission and internal processes.

A poorly organized chart of accounts causes inefficiencies, accounting headaches, and potentially less accurate financial reporting.

Even a well-organized chart can become unwieldy and impede reporting as an organization grows.

This usually happens with a linear (or unified) chart of accounts structure, as it struggles to reflect all the transactional information needed for a larger nonprofit.

For example, if your organization has 40 expense accounts for five locations, three countries, and 12 departments, that creates 7,200 account code combinations.

With a dimensional nonprofit chart of accounts, you only have to manage the 40 expense accounts.

So, if you’re a large nonprofit, it can be hugely helpful in maintaining the integrity, simplicity, and effectiveness of your tracking and reporting.

As illustrated in the first graph below, a linear or unified chart of account structure tends to create an ever-expanding list of unique account numbers.

Graphic 1: Example of a linear or unified chart of accounts

A COA with a table-driven, logic-based dimensional structure, on the other hand, offers more flexibility in reporting quality and insights while adapting for change and growth.

Rather than thousands of unique account codes, you can tag transactions with different dimensions that match your organization’s unique reporting needs.

Examples of dimensions include location, department, project, employee, vendor, funding source, and more.

Graphic 2: Example of a dimensional chart of accounts

Nonprofit accounting software for managing your chart of accounts

Nonprofits must account for funds, grants, projects, programs, locations, and more. They must also report to multiple stakeholders, including the board of directors, donors, and executives.

That’s why it is critical to have a nonprofit accounting solution with robust tracking and reporting capabilities that’s flexible enough to accommodate your changing needs.

The choice of software should be informed by the organization’s size, budget, and specific accounting needs.

Selecting the right accounting software for foundations, philanthropic charities, and other nonprofits can enhance your organization’s financial management capabilities and simplify the ongoing maintenance of your chart of accounts.

For example, Sage Intacct is a cloud-based solution with advanced reporting features, making it suitable for larger organizations.

“Streamlining our chart of accounts with the Sage Intacct dimensions, we’ve been able to get deeper into the detail. We’re able to pull data around donor reporting that we could never touch before. Our management team is looking at the financials for the first time and thinking ‘wow, they’re not 6 months old, they are from last week.’ The finance and accounting team has really risen in their sense of empowerment.”

Shari Freedman, CFO, Room to Read

Nonprofit chart of accounts FAQs

What is a typical nonprofit chart of accounts?

A typical nonprofit chart of accounts includes categories for assets, liabilities, net assets, revenue, and expenses structured to reflect the organization’s specific needs.

The accounts are numbered logically, allowing for easy identification and reporting.

Can the chart of accounts be customized for different types of nonprofits?

Yes, the chart of accounts can and should be customized to meet the unique needs of different types of nonprofits.

Factors such as the organization’s size, funding sources, and program areas will influence how the COA is structured.

What are the key benefits of a dimensional chart of accounts for nonprofits?

The flexibility afforded by a modern dimensional chart of accounts structure generates important advantages for large nonprofits, such as:

Reduced complexity

Because they reduce the number of account codes in the system, dimensions reduce complexity and save time.

Easier, more accurate reporting

Slice and dice data and organize information in comparative (crosstab) or hierarchical (drill-down) formats.

More insightful analysis

Dimensions help reveal deeper insights without exporting data to a spreadsheet for manipulation and comparison.

Enhanced visibility

Instead of backward-looking reporting at regular intervals, dimensions enable dynamic, ad-hoc analysis in real-time.

Greater transparency with donors

Cloud-based accounting allows you to tailor reporting for donors and combine outcomes with financial metrics to enhance your mission story.