3 Reasons to Clean Up Your Chart of Accounts
Here are three great reasons to clean up your organization’s chart of accounts for 2022!
- The chart of accounts is the backbone of your bookkeeping
While all your organization’s money should primarily be coming in and out of a single bank account (your operating account), there are many account codes that we can use to categorize our spending. Rather than having 30 different checking accounts with different checkbooks and debit cards (one for payroll, one for lawn maintenance, one for the electric bill, one for women’s ministry expenses, etc.) we can keep all the money in a single account and simply label our expenditures under the corresponding account code. The more clearly defined each account is in your chart of accounts the easier it will be for your staff to figure out which account to code their expenses against.
- A clean chart of accounts makes your budget easy
Hopefully your organization reviews the budget monthly. This task is important but can be made simpler when the chart of accounts is organized. Rather than having to review line items for “Youth: Sunday breakfast”, “Youth: Wednesday dinner”, “Youth: Misc Snacks”, why not just have one line item labeled “Youth: Activities”? The youth minister in charge of feeding the youth can decide how (s)he wants to allocate those funds as they pick up donuts or pizza for the youth each week. Then when you go to review the budget, you have one line item to look at rather than three. If the financial committee wants a breakdown of how funds in a certain account are being used, then they can request more details. But for a faster budget review meeting the simpler things are the better.
- Less risk of embezzlement
When there are fewer accounts to review then there is less risk of embezzlement. It is much easier to hide transactions when the chart of accounts is unorganized and disheveled. When the chart is tidy and simple then it makes things much easier to review and anything out of the ordinary will stick out like a sore thumb.
Still a bit confused or wanting some clarification? See our sample chart of accounts here.