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Draft invoice excel for non-profit organizations

if you have a million accounts that show up on your financial statements houston we have a problem now i know there's this urge to want to pile everything up onto the financial statements because you want to make sure that you're capturing everything you also want to make sure that you're telling your organization story and that it speaks through the financials right you want to make sure that you're being transparent and i get all of those things and all of those things are important but there is a time and a place for everything and so in today's video i'm going to be going over five sections that your chart of accounts needs and we're actually going to be going into detail and i'm actually going to show you an example once we get down to the last two sections because that's usually where i see the bulk of the problems i'm going to show you some do's and some don't so that you have a clear example of what you should and shouldn't do now let's get started so what is the chart of accounts exactly the chart of accounts is a guide that you use to categorize the different transactions that flow in and out of your organization it is also what determines how things show up on your financial statement so when i am looking at your statement of activities for an example the accounts that show up there are going to be what sits in the chart of accounts and that's why it is very important to outline the chart of accounts correctly so that one your financial statements aren't crowded but that it does speak to the organization how you guys operate where you're spending your funds where you are receiving funds from but we don't want to be too specific right so let's get into the first section and the first section is going to be your net assets and this really just describes or let the user of the financial statement know what the organization is worth and there are typically two accounts here and that's going to be your net assets with donor restriction and your net assets without donor restriction and the reason that this is important is because typically when someone is looking at your financial statements they want to know how much of those assets is directed right by a donor or a funder or a granter right whoever is giving you funding right it also speaks to how much you have that you can determine where it gets put right so those funding that you receive without restrictions right your organization is able to use you know at will right or as you deem fit but those with restrictions you have to stick to how the donor directed it and so a lot of times right users of the financial statements want to know what sits in those two buckets a huge issue i see with this section of the statement of financial position is that there isn't one right i see an equity section which is what for profits show on their statement of financial position or really their balance sheet right because balance sheets are what for-profits call it and the non-profit space is called the statement of financial position right so now that we got that squared away right i see an equity section and that's an immediate red flag to me but what's a double red flag to me is when i look at that section and i'm seeing things like owners pay right so we know in the nonprofit space there are no owners right no one owns the nonprofit right it is something that is put together to so to serve the public right and so even when you are investing and putting money into this organization this is not deemed owner's pay and so you want to be very careful how you categorize and classify things because if you aren't aware of the verbiage being used if you aren't aware of the definition right you could be saying your organization is doing something that really one isn't doing but also it raises question to those who know what they're looking for when they're looking at your financial statements so that's the net asset section remember two accounts that's your net assets with donor restrictions and your net assets without the second section is going to be your assets and this is what your organization owns right so we're talking about things like your cash right we're talking about pledges receivable we're talking about accounts receivable we're talking about prepaid expenses so what does the organization own if you own something right if it's an asset i'm expecting to see it on that statement of financial position under the asset section and i think the main thing you want to look out for here is being very clear on what belongs in the asset section and what belongs in the liabilities section which is the third section that we're going to get into now so the third section is liabilities and this is what your organization owes right so we're talking about things like your payables or those those bills right that you have incurred but maybe you didn't pay yet we're talking about loans here we're talking about deferred or unearned revenue but those of you that are contracting with the government or you get multi-year grants right that you maybe have to perform before you receive right it's a liability at that stage right or those of you who contract with the government you take an advance against those funds it's a liability because of the um government agency is expecting to recoup those funds and so that is an error that i often see is that we have these advances right that we know have to get paid back but they show up nowhere on the statement of financial position it belongs there and it belongs under liabilities now we're going to move into the fourth and fifth section and this is where it gets good and this is where i see the most errors and this is what typically um is the culprit of all the crowding right we're trying to put too many things and be too specific in the revenue and expense area and so i'm actually going to take you to my screen because i really want to walk you through this and show you an example because i think speaking about it is not going to do it enough justice and so let's head over to the screen okay now here we are going to walk through revenue again as a reminder we only need natural categories right we are not looking for all of these specifics and i figured i can show you better than i can tell you so here's an example so in column a we have an example of what you do column c we have an example of what you don't want to do so let's talk this through so when i say you want to keep things simple and natural you'll see over here we have contributed income as a master account and then you have all of these accounts here which would be considered sub accounts so let's dive into this line because this is a good example um of what to do and not do right so essentially let's just say you've got let's see how many of this is over here there's six you have six lines over here for foundation grants right what you would be doing right which would be the correct way to handle this is that all six of those foundation grants should live in this line called corporate and foundation grants we should just be able to see the total when looking at your statement of activities that falls within this line right what i often see which really isn't a great way to do this is that you have foundation grid as your master account but then you have each individual grant showing up as a sub account so instead of just the one line here right showing up on the statement of activities i'm getting all six of these so as you can imagine that can begin to become very detailed as the time goes on and you're doing this for all different types of you know funding streams right so this is not to say that you don't want to know who gave you the grant right we absolutely want that detail but we just don't track it in this way and that's why i say it's very important to know how you're going to be using quickbooks online because there are certain ways you set things up to get what you need right for both management and for external users of the financial statements and so as we you know wrap up this income piece here we want to keep it very simple we want to keep it very natural right and so if we were in the accounting software for example i should be able to i would have been able to let's say double click right into here and then it would have shown me right all of this once i went into it but i wouldn't have seen all of this detail right on that actual um statement of activity right that is just too much detail so we're already here so we're going to move into the expenses this is the fifth and final section right and so the thing to note here is that you're going to have functional expenses and natural expenses the chart of account is not the place for your functional expenses and just as a recap your functional expenses are those expenses that fall into admin fundraising and programs right so i think it's important to note that when you are categorizing expenses you are choosing the natural category but then you are also choosing the class in quickbooks online that it um that it belongs to what i often see what you'll see in this don't column is that organizations will try to classify the functional expense and the natural expense all at the same time in the chart of accounts and then it becomes very convoluted right so here we're seeing admin dash salaries and wages right we don't need to to see that level of detail or um sometimes you'll see admin dash salaries and wages and then you'll also see programs salaries and wages no no no no what i want to see how much do you have in total for salaries and wages that is it right that's all i need to see right now if i needed to dig into the details and know what functional expense this fell into then i need to run a p l by class but when i'm looking at the main chart of accounts i don't need to see all of that detail and then we get you know we go down and get even a little bit more um into the details right so down here we're looking at you know for example contract and professional fees this is a master account but then you have a sub account for accounting audit fundraising investment fees but these are still all like accounts that are not too detailed right these are accounts that are simplified we can kind of tell right by looking at the name what would fall in here but nothing about looking at these accounts is telling us what functional expense it falls in it's just telling us the natural category so we have an idea of what the organization is actually spending their money on when i look over here this honestly gives me anxiety okay guys so let's look at down here for an example right first of all consulting salaries and wages is is honestly doesn't make sense right because if you're a consultant then you're not an employee which means you are not paid a salary but that's neither here nor there let's get back to the topic at hand here we have it broken down where it says admin right so that means that the organization is trying to parse out that this belongs to the admin class again this is something that we can show in a different report in a different statement it doesn't need to be seen on the statement of activities what i ideally what we'd like to see is one line right that just says consulting right even this is too much detail right because here what you're telling me is that in each of these three lines i'm able to see what this consultant makes what this consultant makes and what this consultant makes that's also a lot of detail and then we start getting into confidentiality and really just putting too much on front street right the idea is to just have a general account but if someone ever did ask okay what makes up that account then of course we can dig into the details right but on the on the onset right when we are just running our financial statements and we're just running that statement um of activities here is where you want to live so i hope this out having this visual really showed you the difference between what you want to do and what you don't want to do now that is all for this video i hope you really got something out of this i hope you were able to see what the chart of account should look like what are some of the things that you need to be thinking about when you're building it out and remember this is something that you want to do before you start getting into the nitty-gritty of you know shelling out reports and messing around in quickbooks online right or if you are an established organization and you're looking at your financials and you're like this looks muddy there's a lot happening here then that is a clear indication that your chart of accounts could use an overhaul and so first you want to determine what does that look like right get it on paper get in excel determine what it needs to look like first and then you can move forward with actually changing things and implementing it in the actual accounting software so thanks again for watching i will see you guys in the next video