Month: April 2015

Accounting Systems and Chart of Accounts – Foundations for Financial Success

by Jeremy Myers

Audit Supervisor at Atchley & Associates, LLP

Accounting systems come in many shapes and sizes, from the simplest forms of QuickBooks to the more complex and robust forms of SAP and Oracle. The main objective of any accounting system is that it can store and produce meaningful accounting information for its users while being in line with your organizations’ vision, strategies, and needs. The correct accounting system can make the lives of its users better by minimizing the tasks needed to operate the books of any organization.

First your organization must identify the complexities of its operations to discover how the financial information will be used, i.e. provided to owners of the organization, lenders, donors, fundraisers, grantors, department heads, boards or those charged with governance, etc… Once it is determined who and how the financials of your organization will be used the second step is to select a system that fits those needs with potential room to grow or customize to best fit your needs.

Once the proper accounting system is selected, the next step to help achieve the goals of the accounting system is to set up a chart of accounts that is again useful to the users of the information. Setting up a consistent chart of accounting and using consistent numbering and naming convention is key. For example, if all cash accounting have the same starting numbers 1000, 1001, 1002 and the banks name, when it comes time to reconcile the bank accounts, it will be very easy to tell which cash account goes to which bank reconciliation and bank account. If all salary accounts are in the 5000s and all revenue for a certain product or funding source is 4100s then pulling information and grouping in a way that is useful to your organization will be faster. Always remember to use spacing between accounts as you never know when your organization will develop a new product or obtain a new funding source, this will allow you to keep the account numbering consistent, unique, and identifiable.

If your organization has multiple lines of business, be it funding sources, products, or services, setting up a fund code as a part of the account number will help track the performance, restricted assets, debt, revenues, and expenses related to each line of business. By simply adding a few digits to each of the account numbers, 01-1000 – “Bank Name” – maybe related to unrestricted activities, 02-1000 – “Bank Name” – maybe related to restricted activities, and 15-5000 – “Salaries” – would be related to specific program’s salaries.

Once your accounting system has been selected and chart of accounts setup and both are in line with the organization’s vision, strategies, and needs pulling out the revenue and expenses related to new products or projects or to see how division 15 is performing will only be a few keystrokes away. Leveraging your accounting system and chart of accounts to work for your organization is setting up a solid foundation for financial success, no matter how large or small your organization may be.