A chart of accounts (CoA) is the road map in accounting. It makes processing payments and receipts, creating reports, extracting information, and so many others things much easier. There are several well-established rules for creating a chart of accounts which have been codified by the AICPA (American Institute of Certified Professional Accountants). These patterns means that anyone pick up a financial statement from any company and pretty quickly get the information they’re looking for (presuming the data is in there to begin with). Look at your chart of accounts and see if it follows the rules listed in these blog posts.
Accounting uses different names for the same thing. It can be confusing but I’ll give you some of the variations. They’ve acquired these names over the years and in different industries but they mean the same thing.
Every CoA has several divisions. The most basic one is the Balance Sheet and the Income Statement. A balance sheet shows all the money an organization has (assets), all the debts it has (liabilities), and the difference between the two (retained equity).
You can create as many lines and categories in your financial statements as you need but not too many. Even the largest of churches do not have more than 300 (that includes bank accounts, designated funds, payables, revenue lines, and expense lines.
Get to know what each of these mean so that when you’re looking at a financial statement so you’ll know what the difference is between them and what their respective purposes are. Next post, the descriptions of these sections.
Lead On!