Nonprofit Chart of Accounts: A Stress-Free Set Up With Examples

Running a nonprofit is a passion-driven endeavor. But let’s face it, the financial side of things can feel like a never-ending maze. You’re juggling grants, donations, and expenses, all while trying to make a positive impact. Keeping track of where every dollar is coming from and where it’s going can become a logistical nightmare. 

So, if your books are more tangled than a set of holiday lights, it might be time to set up a nonprofit chart of accounts (COA).

The good news? A well-organized chart of accounts can turn that maze into a clear path. 

In this blog, you’ll learn exactly what a nonprofit chart of accounts is, why it’s your best friend, and how to set one up without breaking a sweat. By the end, you’ll be armed with the knowledge to streamline your finances and focus on what really matters — changing the world.

What is a Nonprofit Chart of Accounts?

Imagine your nonprofit’s finances as a huge, bustling warehouse. In this warehouse, every donation, grant, and expense needs a specific place on the shelf. The chart of accounts is the labeling system that keeps everything organized. It’s a structured list that categorizes all financial transactions and categories specific to your organization so you can easily see where your money is coming from and where it’s going. Think of it as the ultimate inventory tracker for your finances.

Key Components of a Nonprofit Chart of Accounts

Before getting started, there are a few things to know about how a COA is set up. Every nonprofit’s chart of accounts will look a tad different, but they all share five main categories:

1. Assets – These are resources your nonprofit owns, like cash, investments, property, or equipment.

2. Liabilities – These are what your nonprofit owes, such as loans, accounts payable, or deferred revenue. 

3. Net Assets – This category shows the difference between assets and liabilities. It’s essentially what’s left after you’ve paid off what you owe — your nonprofit’s financial cushion.

4. Revenue – This is your lifeblood. All the money flowing into your organization falls under this category, including donations, grants, and program income. 

5. Expenses – These are the costs incurred in running your nonprofit, from salaries to office supplies. It’s the price tag of making your mission a reality.

Importance of a Chart of Accounts for Nonprofits

Having a well-structured chart of accounts is crucial for nonprofits for several reasons. It’s not just about staying organized — though that’s a huge plus. A proper chart of accounts helps you:

1. Stay Compliant – Nonprofits have specific reporting requirements. A clear COA ensures you’re meeting them without last-minute scrambling.
2. Enhance Transparency – It shows donors, board members, and stakeholders exactly how funds are being used, boosting trust and confidence.
3. Make Better Decisions – With accurate financial data at your fingertips, you can analyze financial performance, measure the success of various programs, and make informed decisions about where to allocate resources.

How a Nonprofit’s Chart of Accounts Relates to Financial Statements

But wait! There’s more! Here’s where the magic happens — your chart of accounts is the backbone of your nonprofit’s financial statements [insert mind-blown noise]. Here’s how it works for each type of financial statement your nonprofit should care about. 

1. Statement of Financial Position:

The Statement of Financial Position, or Balance Sheet, gives a snapshot of your nonprofit’s financial health at a specific point in time. It details your assets, liabilities, and net assets — exactly what’s in your COA. Without a well-organized COA, pulling together this crucial report would be like trying to solve a puzzle with missing pieces. The COA ensures that all your assets and liabilities are correctly categorized, making it easy to generate an accurate balance sheet.

2. Statement of Activities:

The Statement of Activities, or your Income Statement, shows how your nonprofit’s net assets change over time, detailing your revenue and expenses. Your COA comes into play by tracking every source of income and every expense, neatly organizing them into the revenue and expense categories. This organization makes it possible to create a clear and comprehensive Statement of Activities that shows stakeholders how you’re using funds.

3. Statement of Cash Flows:

This statement shows how cash moves in and out of your organization over a period of time. It’s all about liquidity — how easily you can meet your financial obligations. Your COA provides the categories needed to track where the money is going, whether from operating, investing, or financing activities. A solid COA ensures that your Statement of Cash Flows accurately reflects your nonprofit’s financial position and operational efficiency.

4. Statement of Functional Expenses:

This statement is unique to nonprofits and breaks down expenses by function, like program services, management, and fundraising. Your COA plays a critical role here, helping you allocate expenses to the right categories. By categorizing costs in your COA, you can easily generate this statement, demonstrating to donors and stakeholders that you’re using funds effectively and efficiently.

How to Set Up a Nonprofit Chart of Accounts

Now you’re ready to get started!

When setting up a nonprofit chart of accounts, you’ll typically assign a unique account number to each of the categories listed above to facilitate easy identification and organization of financial data. This numbering system helps streamline financial reporting and ensures consistency in tracking transactions.

Build a COA Step-By-Step

1. Start with a Template – Don’t reinvent the wheel. Use a template tailored to nonprofits as a jumping-off point.
2. Customize for Your Needs – Nonprofit organizations often deal with restricted funds, grants, and donations, which require specific accounting treatment. Establish what these needs are for your organization and then tailor your chart to reflect your unique funding sources and programs. 
3. Categorize Transactions – Assign every transaction to the appropriate category to ensure nothing slips through the cracks. Along with this, you’ll create appropriate account codes (more on this below) and group similar accounts together to ensure consistency and ease of use. 

Best Practices for Creating & Maintaining a Nonprofit Chart of Accounts

To set up and maintain an effective chart of accounts for nonprofits and ensure that you’re avoiding common mistakes, follow these best practices:

1. Keep it simple and easy to understand –  Don’t overcomplicate things. A straightforward COA is easier to manage and understand.
2. Align your chart of accounts with industry standards – The Unified Chart of Accounts (UCOA) is also a great place to start and this easily aligns with Form 990 reporting requirements.
3. Establish policies and conduct staff training – Train your staff and volunteers on how to use the chart of accounts correctly.
4. Consistency is key – Ensure that everyone handling finances follows the same guidelines to maintain consistency and avoid discrepancies.
5. Regularly review and stay flexible – Your nonprofit’s needs will evolve, so be ready to adjust your COA as necessary by setting a schedule for periodic reviews. This proactive approach will help you catch discrepancies or inefficiencies before they impact your financial management processes.
6. Leverage technology – Use accounting software like Quickbooks to streamline the management of your chart of accounts, save time, and reduce human error by automating tasks like data entry.
7. Outsource a nonprofit-specific accounting firm – Nonprofit finances are nuanced and require specific skills and understanding. Make sure your financial partner is well-versed in nonprofit accounting regulations to avoid penalties or mistakes later on. You can always outsource this role too! See what Hiline’s CEO, Matt Gardner has to say about how a nonprofit-focused finance firm can help streamline operations. 

Nonprofit Chart of Accounts Examples & Account Codes

Think of your code as a logical, numerical order of all your accounts. While we can’t list every account code your nonprofit might need here, the examples below might give you a better sense of how your COA might look. We also included some common examples for each category. But remember to customize these to fit your organization’s unique needs.

Following the UCOA as a guide, here is how we might break it down:

• Current Assets 1000-1999:
  • Cash and Cash Equivalents (1010): This includes money in checking and savings accounts, petty cash, and short-term investments that can be quickly converted into cash.
  • Accounts Receivable (1020): Funds that are owed to your nonprofit, such as unpaid pledges or fees for services rendered but not yet received.
  • Inventory (1050): Supplies, materials, or goods that your nonprofit holds for future use in its programs or for sale in fundraising efforts. 
• Liabilities 2000-2999:
  • Accounts Payable (2000): This category tracks bills that need to be paid, such as vendor invoices for services or supplies.
  • Accrued Expenses (2150): These are expenses that have been incurred but not yet paid, such as salaries owed at the end of a pay period.
  • Deferred Revenue (2300): Sometimes, you receive payment for services or events before they occur. These funds are recorded here until they are earned, at which point they’re moved to the appropriate revenue category.
• Net Assets 3000-3999: 
  • Unrestricted Net Assets (3000): These are funds that your nonprofit can use for any purpose.
  • Temporarily Restricted Net Assets (3100): Funds that are restricted for a specific time period or purpose. Once the restriction is met, they move into the unrestricted category.
  • Permanently Restricted Net Assets (3200): Endowments or other funds where the principal is meant to remain intact, with only the income generated being used for operations or specific programs.
• Revenue 4000-6999
  • Unrestricted Donations (4100): These are funds that can be used for any purpose within the organization. They’re often the most flexible and are essential for covering general operating expenses.
  • Restricted Donations (4200): Some donations come with strings attached—like grants or donor-imposed restrictions that dictate how the money can be spent. For instance, a donation might be restricted to a specific program or project.
  • Government Grants (4500): Funds received from federal, state, or local governments to support specific programs or operations should be tracked separately from private donations.
  • Program Fees (5100): If your nonprofit charges fees for services—such as tuition for educational programs, admission fees for events, or membership dues—those revenues are categorized here.
• Expenses 7000-9999
  • Program Expenses (7000): These are the costs directly related to carrying out your nonprofit’s mission. For example, Youth Program Supplies (7100) or Health Outreach Services (7200).
  • Administrative Expenses (8000): These include overhead costs necessary for running the organization, like Office Rent (8100), Utilities (8200), or Salaries and Wages (8300).
  • Fundraising Expenses (9000): Costs incurred while raising funds to support your mission, like Event Costs (9100) or Donor Communications (8200).

    

Take Control of Your Nonprofit Finances

By setting up and maintaining a solid COA, you’re not only staying compliant and transparent — you’re also empowering your organization to make better financial decisions. Remember, the ultimate goal is to simplify your financial processes so you can focus on making a difference.

The number one way to do this is to keep it simple and intuitive to ensure ease of use for your finance team. Strike that balance between having enough detail to track finances accurately and not overwhelming your team with unnecessary complexity. 

Still, we know that setting up a well-organized chart of accounts can feel daunting. 

Ready to take control of your nonprofit’s finances but need a little extra support? Learn more about setting up your chart of accounts, or contact us today to get expert advice tailored to your needs!