The basic structure of a General Ledger Chart of Accounts is discussed in Setting up Books and Records. That section describes one way to organize expense accounts, namely, by type of expense. In this method, expense categories could include items such as:
- salaries and benefits,
- office supplies,
- travel, and so on.
Organizing accounts by type of expense is quite common and lets you answer questions such as:
- How much did we pay in salaries to all of our employees last month?
- How much has our office space cost us this year?
- How much more does it cost to heat our building this year compared to last?
If your charity is very small and has only one program or activity, this may be all the information you need in order to manage and report on your activities. Most charities will need a different approach to give them more information, however.
Another common way of organizing expenses is by function. This approach bases expense accounts on the functions, activities, or programs of a charity. Depending of the charity and its operations, expense categories might include:
- counselling services,
- education programs,
- administration, and so on.
Organizing accounts by function allows you to answer questions such as:
- What did we spend on fundraising last month?
- How much have we spent offering counselling services this year?
- How much more did we spend on research this year compared to last?
There are other, less common, ways of organizing expenses that may be useful in some circumstances. For example, accounts can be organized:
- by department, for larger charities (for example: communications, member services, finance, human resources, executive office, and so on);
- by geography, for multi-location charities (for example: by province, city, or country); or
- by organization sub-unit, for federated or other complex, multi-level charities (for example: local chapters, regional offices, provincial offices, etc.)
Each of these approaches provides answers to a different set of questions, but rarely does one approach answer all of your questions. And, none of these approaches by itself is adequate to provide all of the information required in a charity’s annual reporting to the Canada Revenue Agency (CRA). To meet your charity's needs, you will probably have to combine more than one method of allocating expenses.