What is a chart of accounts?
The chart of accounts is the list of categories into which you sort every transaction. Each category has a code and a name, such as “5100 Staff salaries” or “6200 Travel”. Every ledger entry uses at least one account.
It looks like a small technical choice, but it shapes every report you will ever run. A poor chart makes simple questions hard to answer. A good one makes donor reports almost automatic.
What are the main groups?
Use the five standard groups:
| Group | What it holds | Example |
|---|---|---|
| Assets | What you own or are owed | Cash, bank, receivables, equipment |
| Liabilities | What you owe | Payables, advances received, accruals |
| Net assets (or funds) | The difference | Restricted and unrestricted balances |
| Income | Money coming in | Grants, donations |
| Expenses | Money going out | Salaries, travel, supplies |
Give each group a number range, for example 1000s for assets and 5000s for expenses. Leave gaps within each range.
Which mistake do most NGOs make?
They create accounts for every grant, such as “Travel – Grant A” and “Travel – Grant B”. After a few years the chart holds hundreds of near copies, and any change needs many edits.
Instead, keep one “Travel” account and add tags to the entry: the grant, the project, the budget line and the fund. Reports can then slice the same account by any tag. The account says what was spent. The tags say for whom and for what.
How do you design it step by step?
- List your reports. Donor financial reports, board statements, audit schedules and any funder templates.
- Note the categories they need. Donors often want staff, travel, equipment, supplies, contracts and overhead.
- Draft the expense accounts to match those categories, and add detail only where you need it.
- Mark each account’s class. Tag it as program, support or fundraising, if you need functional reports. See our article on functional expenses.
- Draft income and fund accounts. Separate restricted from unrestricted.
- Test it. Post ten real transactions and produce a donor report. Fix what does not fit.
- Document it. Write a one-line rule for when to use each account.
How should you name and number accounts?
- Use plain names that describe the cost, not the person who approves it.
- Use a fixed number of digits.
- Keep parent and child accounts so you can report at two levels.
- Avoid “miscellaneous” accounts. They hide problems.
How should you maintain it?
Give one person the job of approving new accounts. Review the chart once a year, and close accounts you no longer use instead of deleting them. A short change log helps auditors follow the story.
A worked example
Suppose a small NGO designs the expense side of its chart. It starts with the categories that its two main donors use in their reports: staff, travel, equipment, supplies, contractual services, and other direct costs, plus one for support costs.
Under staff, it creates three accounts: salaries, benefits and consultants. Under travel, it creates local travel and international travel, since one donor asks for the split. It does not create “Travel – Health Grant” or “Travel – Education Grant”. The grant is a tag on the entry.
It then posts a test month: ten real invoices and a payroll journal. It produces both donor reports from the ledger. One donor wants telecom costs shown on their own line, so the team adds a telecom account. The second donor’s report works as it is. After the test, the chart has 62 accounts, and the team writes a one-line rule for each.
Pitfalls to avoid
- Copying another NGO’s chart without checking your reports.
- Too much detail. Fifty types of office supply do not help anyone.
- Too little detail. One “operations” account hides costs donors want to see.
- Mixing natures. Do not put a salary and a travel cost in the same account.
- No owner. Without one approver, accounts multiply.
Questions for your auditor and donors
Before you finalise, ask your auditor whether the structure fits your statutory reporting. Ask each large donor for its report template. Compare the template lines with your accounts. If a line needs data that your chart cannot produce, change the chart now, since it is much harder after a year of posting. Local accounting rules differ, so check what applies in your country.
How to roll out a new chart
Train the people who post entries before you switch. Give them a one-page guide with the most used accounts and plain examples. Map every old account to a new one in a simple table, and test the mapping on last year’s closing balances. Switch at the start of a period, never in the middle of one, and keep the old chart for reference.
Where EMPOBase fits
In EMPOBase, you set up your own chart of accounts with statement classifications. Each journal line can also carry a project, a grant and grant budget line, and a fund with its restriction class, so you do not need an account per grant. Cost Centers sit alongside. Financial statements use your classifications, so review them before you rely on a statement. The ledger is not statutory accounting. See the platform overview.