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, giving detail to all the major categories of the balance sheet: assets, liabilities, reserves, Revenues, expenses, and accumulated surplus. There are many accounts and sub-accounts in each of these six areas enabling us to talk clearly about the financial affairs of the church in some detail.
There is always a tugging in two directions in establishing that further detail however. We want information we can retrieve in the most minute detail; most of the time we also want the details summarized in a way which is useful. There is no single timeless answer to this duality. Consequently, it is important to review the various account categories periodically and to add, diminish, or re-sort them based primarily on an updated view of congregational life. Doing so means a great chart of accounts will easily produce great financial reports.
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 “insurance” as a line item with one premium payment each year? It’s as easy to pull a history of payments for insurance whether it is in an isolated line or combined with “building repair” for example.) 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 particular spending without maintaining hundreds of separate accounts to do it. Think about the board meetings and committee meetings you have attended. Think about your financial reports. 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 spending 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 too, while we need cleaning supplies for the kitchen we do not want to have the congregation focused on that need. Rather, we want attention paid to 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 spiritual exploration and growth
organizational health and leadership development
community presence and denominational support
membership support and pastoral care
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. This is the first purpose of the categories: stimulating thought and discussion about the purpose of being in community.
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. This is the second objective of my chart of accounts: to be supportive of committees and staff, to help them realize their importance to the whole.
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 13 for an example of a chart of accounts.) I argue that they inspire and will raise more stewardship 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 and managing my notion of the church’s ministries, and that is clearly a judgment call.
Some will wonder, “What should we do with the minister’s salary? It doesn’t fit any category!” It’s an excellent question with an ambiguous answer. A programmatic budget summarizes organizational “outputs” rather than “inputs.” It is easiest to be definite about organizational inputs, such as salary, photocopying, postage, and telephone costs. 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 worship program, and how much are they related to member involvement? There may be some arbitrary assignment of costs to more than a single account (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 13, 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 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 spending can be isolated within the chart of accounts and then coded to produce a committee report.
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. Reformatting the budget for administrative purposes is not a problem, as long as the leadership agrees.
 Usually one refers to only five major balance sheet categories. I have added “reserves” as a sixth, and my preference is to treat all reserves as restricted equity accounts. Many see restricted reserves as a liability instead, and I have no argument with those who do so. In truth, some reserve accounts should probably be thought of as liabilities because they consist of gifts given with a specific purpose in mind, which the congregation is bound to honor. Other reserves, such as building repair funds, are frequently created by the board from extra cash at year end. What the board has done in such a case can be undone; these are, truthfully, equity accounts. Some reserve accounts will have both special gifts and general revenues, and are a hybrid between equity and a perceived liability. I find it easiest for others to grasp quickly if they are all shown as a form of equity — restricted to a stated purpose.