The budget, the chart of accounts, and the financial reports are the key
elements of a unified financial planning and monitoring information system, and
they must all be compatible. The chart of accounts is a numbered list of the
categories and line items, which is used to record revenues and expenses; it is
the link between the budget developed during the planning process and the
financial monitoring system. Financial information and reports will be easy to
assemble when you have a chart of accounts that uses the same categories and
line items as those in the budget, thus simplifying the preparation of budgets
and reports and the comparison of budgets with actual expenses. When an
accounting system and its chart of accounts are not well organized, meaningful
budgets and reports require extra work.
Develop a flexible chart of accounts
A chart of accounts lists every possible type
of asset, liability, revenue, and expense, and assigns a number to each "line
item" on the list. This is one of the most basic tools of an accounting
system. The chart of accounts allows the financial staff and general managers to
have accurate information on the sources and uses of financial resources.
Except
in very small organizations, managers usually leave the design of the chart of
accounts to bookkeepers, but they must be able to judge whether or not the chart of
accounts is adequate for the needs of the organization. In order to be useful, a
chart of accounts must:
- Have a separate line item for each type of income or
expense that needs to be tracked separately for donors and for management decision
making;
- Use categories and line items that match (in terminology and level of
specificity) those in the organizational and project budgets, as well as those in
the financial reports required by donors or top management;
- Provide a breakdown
of each expense type according to use. For example, fuel for vehicles should be a
separate line from fuel for an operating room generator.
If the chart of accounts
has two line items for fuel (one for vehicles in the category of "vehicle
operating costs" and the other for warehouse generators in the category
"building operating costs"), then the budget should also show line items
under these same categories, thus making separate estimates for the fuel needs of
vehicles and generators.
Furthermore, although you may purchase the fuel for both
these purposes from the same supplier during the same transaction, your accounting
system should record this purchase under two separate categories in the financial
reports, continuing to make this distinction across the financial management
system.
If this rule isn't followed and your financial reporting forms have
only one line item for fuel, it will take a lot of extra work to determine how much
your program spends to operate its vehicles.
Example from Liberia - Chart of Accounts
