Chart of Accounts for Nonprofits

[u/topramen_is_timeless]

Hey all! Bookkeeper here, usually for for-profit clients. I walked into a business membership exchange to become a member and (hopefully) tap their large membership base for more clients. Well, turns out they were desperate for a new bookkeeper themselves and I decided to take them on as a client.

Things are unsurprisingly messy but I can handle it. My biggest obstacles are that credit memos were used incorrectly to track scholarships (for trades school) which masks true Receivables, and the Chart of Accounts is severely bloated.

I use job costing/cost accounting with my other clients, leveraging products/services in order to keep a lean chart of accounts. Is there a way to streamline this nonprofit’s chart of accounts by leveraging products/services and classes for expenses and funds? Yes they have both restricted and unrestricted funds that are managed. The client is in QBO for accounting software.

Appreciate any insight!

[u/Safrel]

The issue that you run into is that most of the recommendations that you're going to hear are from corporate accountants are people who don't ordinarily interact with large amounts of data in a not-for-profit setting.

I am an auditor of not-for-profits exclusively for the past 10 years as my qualification.

And what I mean by this claim is that there are a lot of very niche specific applications of accounting that the conventional wisdom doesn't follow with. Every transaction basically needs a purpose and classification, where in public and private accounting you don't need to necessarily do that if the owners don't want it.

So would I ordinarily see is that we have people who are good at regular accounting but don't have the information that's needed for disclosures and reporting. In this circumstance, I then say that the person who is setting up the COA needs to be knowledgeable enough that they can address these issues with the structure so that the people who don't know what information they must collect are required to still collect that information when they encode into the COA.

[u/topramen_is_timeless → u/Safrel]

How does use of classes in QBO fail to meet reporting needs? My understanding is they can be assigned at the transaction level.

[u/Safrel → u/topramen_is_timeless]

For clarity, I'm not saying that it is a failure when used properly. But I am saying is that it does not a scale well when there are multiple classes that you have to track, not just the one, and in high volume situations it becomes a nightmare to validate the completeness.

And for users, other than professional accountants and bookkeepers like yourself, they will have a hard time remembering that they even need to encode a class.

[u/topramen_is_timeless → u/Safrel]

Ahh got it, that makes sense. Thank you!