A chart of accounts (COA) is simply a list of all accounts that are used to classify and summarize transactions. The COA is the backbone of accounting because it's the framework that organizes and tracks a company's financial data. The COA is essential for making informed financial decisions, analyzing financial health, and generating financial statements. 

Here are some reasons why the COA is so important: 

• Accurate tracking: The COA ensures that every dollar spent or given is accurately tracked. 

• Financial statements: The COA's structure determines how transactions are displayed in financial statements such as balance sheets, income statements, and cash flow statements. 

• Reporting: The COA provides the framework for financial and management reporting. 

• Decision making: The COA helps churches make smart financial decisions based on clear, organized information. 

• Organization health: Churches that maintain a well-organized COA are better equipped to analyze their financial health. 

While we understand that a COA is important, it can easily become unwieldy. We frequently see COA’s that have accounts that haven’t been used for years, or accounts that are too detailed and granular.

The key components of a COA are:

• Assets (individual bank accounts, investments, property)

• Liabilities (accounts payable and loans)

• Equity (Contributions and retained earnings)

• Income (tithes, rental income)

• Expenses (operating and program)

Importance of tailoring the COA for your church:

• Spend some time considering your church’s unique mission and vision. As you do, consider how this mission will shape your COA.

• Hold a brainstorming session with staff and key volunteers. This will help to align financial reporting with the church’s vision and values.

• Ask questions such as:

  • What programs are most vital?

  • How do we track different funding sources?

  • What specific programs, ministries and initiatives do we want to track?

Common Mistakes

• Overcomplicating the COA. Too many categories can lead to confusion. There are other ways to capture data without adding a new account line. This will help keep the COA relevant for church reporting.

• Neglecting to Update. It is important to regularly review and adjust the accounts as a church changes. 

• Not training staff and volunteers. Without documentation and training, they will not know which account to use.

To summarize, if it’s been a while since you have taken a look at your chart of accounts, schedule some time to do so! As we approach the end of the year, it is a great time to make sure you are set up accurately and aligned with your church’s mission! 

A well structured COA supports financial stability and knowledge and keeps the backbone strong.