THE CHART OF ACCOUNTS
"A rose by any other name would smell as sweet . . ."
The purpose of the chart of accounts is to summarize financial data. A church organization has literally hundreds or thousands of separate financial transactions occurring every year. These need to be sensibly summarized. Hence, the chart of accounts.
The chart of accounts details all the major categories of the balance sheet: assets, liabilities, reserves, accumulated surplus, and revenues and expenses. There are many accounts and sub-accounts in each of these six areas because it is not possible to talk clearly about the financial affairs of the church without knowing more detail on the status of each.
There is always a tugging in two directions in establishing that further detail. We want information we can retrieve in the most minute detail; we also want the details summarized in a way which is useful. There is no correct and timeless answer to this duality. Consequently, it is important to review the various account categories periodically and to add, diminish, or re-sort them.
Usually one needs to reduce the number of accounts. My rule of thumb is that if there are very few separate transactions being recorded in a particular account each year, it isn't doing much work for you. (For example, why would one have an "insurance" line item with one premium payment each year?) Alternatively, if no one has asked for a particular piece of financial information or used it in some decision in the last three years, it is suspect as to its necessity as a separate account. Computerized accounting tools make it extremely easy to retrieve information on spending without maintaining hundreds of separate accounts to do it. Think about the board meetings and committee meetings you have attended. Think about your chart of accounts. How much of that detail is being used? The IRS has a claim on certain types of information. Other than that, the rest is by your own design.
So, what is my design? The area of greatest flexibility, and requiring the most thought, is “expenses”. If I were to start from scratch describing how the church spends its resources I would consider my most fundamental need first: expressing focus for the energies of the church. Fortunately this approach also has some relevance organizationally; usually the most useful way to organize people is also around the driving energies being expressed. There can be a duality between the “pure” programmatic expression of what we are about and the organizational manifestation. But, let’s begin the thinking with a stronger focus on the programmatic description, rather than the organizational.
You will recall that we already identified the areas of energy when we discussed the process of raising funds. Remember, while we need cleaning supplies for the kitchen we do not want to have the congregation focused on that need. The community needs to focus on what it is that inspires us and gives meaning to our association several years into the future. These are the programmatic areas that make sense, to me at least.
lifelong exploration and spiritual growth
organizational health and development
community presence and denominational support
membership growth support
To get the leadership and the congregation to agree on a vision in these areas, there will need to be in-depth planning and discussion about what they mean. As that discussion begins to gel, various committees will see the direction in which they want to go. The budget grows out of such planning. Most committees will fit entirely and easily into one of these four categories. The second objective of my chart of accounts is to be supportive of committees, to help them realize their importance to the whole. So, spending categories that are helpful to committees and staff in planning and controlling their affairs constitutes the second level of priority.
The planning and envisioning categories arise from the rules of stewardship one adopts. Those above represent how I want to "see" my church, and how I want to encourage others to see it with me. (See Appendix 16 for an example of a chart of accounts.) I argue that they inspire and will raise more stewardship gifts income than talking about the minister’s housing allowance. In the last analysis, however, any account definitions are arbitrary. The only justification for them is that they will prove helpful in supporting my notion of stewardship, and that is clearly a judgment call.
Some will wonder, "What should we do with the minister's salary? It doesn’t fit any particular category!” It's an excellent question with an ambiguous answer. The proposed chart of accounts in the appendix summarizes on organizational system "outputs" rather than "inputs.” It is easiest to be definite about inputs, such as salary, photocopying, postage, and telephone costs. We know how to count the cost of inputs. It is difficult to categorize spending for outputs in a way that is entirely satisfying. How much of the choir costs are part of the spiritual program, and how much are they related to new member involvement? Of necessity there will be some arbitrary assignment of cost accounts (like the minister's salary) Or, equally arbitrarily one can pull the minister and church secretary into a separate unallocated category: "General Operations.”
As you review the chart of accounts, you will see that I have been arbitrary, but not capricious. While one must make a judgment about how to categorize the costs of the choir or of the family retreat, the judgment is not obtuse --- whatever seems best to the leadership of the community is best. We are forgoing tidiness to come up with a financial picture of the community which, if vague on the edges, carries a deeper message.
Finally, as you review the specific Chart of Accounts offered in Appendix 16, you may notice that there are no committees listed, even though I have suggested the importance of supporting committees. Nomenclature that is descriptive of programs, rather than organizational entities, is preferable in my opinion because it reduces the tendency of groups to isolate themselves from the overall community. In small ways it is important to keep the notion alive that we are a single community, each part serving the whole.
Committees do have budgets and are responsible for administering them. They need to get routine budget reports showing how they are progressing through the year. Good software helps. Most committee functions are included within the chart of accounts, and can be coded to reproduce into a committee report.
Additionally, there are instances, for example "photocopying,” in which many different entities within the church have identical cost categories. It is more important to collect program costs for the worship committee or the RE committee than to collect all photocopying costs in one place. So, use several photocopy sub-accounts. If anyone ever asks, it will not take much effort to summarize photocopying over the past few years; but there is little value in doing it routinely.
Finally, it should be clear that the budget adopted by the board of trustees or the congregation may have a strong programmatic orientation. It might be more helpful to reformat that same budget for management purposes through the year. One might present a budget showing all the religious education costs, including salaries, as a single program area. Yet, in managing the budget it might be easier to have one category with all personnel costs: minister, RE Director, Music Director, teachers, community outreach workers and so on. There need be nothing preventing the church administrator from collecting the payroll tax, etc, in a single line item.