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Rethink Your Not-for-Profit’s Chart of Accounts

Client meetingPart I

By now, most professionals who serve not-for-profit organizations in governance or financial accounting roles have gained a basic understanding of the impending changes to the not-for-profit financial reporting model. This two-part series focuses on implementation and offers actionable recommendations to help not-for-profits prepare for the impacts of the new guidance. 

Look at the New Standard through the Lens of Your Chart of Accounts

The Financial Accounting Standards Board's (FASB) Accounting Standards Update (ASU) No. 2016-14, Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities, will impact several line items in the financial statements of not-for-profit organizations. To accurately and efficiently reflect those changes, it’s important that not-for-profits create a plan to adjust their chart of accounts during 2017 or 2018.

The timing of the adjustments will depend on your organization’s fiscal year-end and whether you plan to early-adopt the new standard. As you prepare to implement the new standard, be sure to discuss the timing with your external auditor to ensure there will be no interruption in the audit and to determine if comparative financial statements should be presented in the year of implementation.

The new standard will impact the chart of accounts in five areas: liquidity, net assets, investment return, statement of cash flows and expense reporting. Recommendations for chart of account modifications in these areas will be covered in this blog post series. Keep in mind, the exact types of adjustments depend on the accounting system the organization uses.


The standard requires qualitative information about how a not-for-profit manages its available liquid resources. It also requires quantitative information illustrating the availability of financial assets at the balance sheet date to meet cash needs for general expenditures within one year of the balance sheet date. To capture this information, consider the following:

  • Report assets as current and non-current. In many accounting systems, this can be done by grouping accounts on the balance sheet, but you may need to add new accounts to provide the additional level of detail needed.
  • Determine how to track the information related to external limits imposed by donors, laws or contracts and set up any necessary codes. For example, cash with use restrictions should be readily identifiable.
  • Make sure your implementations of liquidity and net asset requirements (see below) are aligned.

Net Assets

Not-for-profits currently report net asset balances in three classes: (1) unrestricted, (2) temporarily restricted and (3) permanently restricted. The new standard requires not-for-profits to report net assets using two classes: (1) those with donor restrictions and (2) those without donor restrictions. Consider the following recommendations to address these changes:

  • Create a new account called “net assets with donor restrictions” to roll up the temporarily and permanently restricted net asset accounts. If your software allows you to create report groups, you should be able to keep your current temporarily and permanently restricted net asset accounts and just use the grouping feature to combine them for reporting purposes. This will allow you to continue to track the details needed for note disclosure. Remember (1) not-for-profits will still need to track the different types of donor restrictions to support the requirement to disclose the nature and amounts of those restrictions and (2) if the organization has any endowment funds that are considered “underwater,” those funds’ balances will need to be reflected in the new account.
  • Rename the unrestricted net assets account “net assets without donor restrictions.” If the organization has instituted a policy that stipulates an implied time restriction for donor-restricted gifts of property and equipment that will expire over the useful life of the asset, you will need to reclassify any remaining balances to this account.
  • Consider having your board set aside amounts under your operating reserve policy as board designations. If you choose to do this, think about creating an account called “operating reserves.” Doing so will allow you to break out this information for reporting purposes. Depending on your accounting system, you may add a restriction code, a fund code or a net asset account.
  • Consider adding additional subaccounts under “net assets without donor restrictions” for specific board designations, such as investment in capital assets and quasi-endowments. With the new disclosure requirement to provide quantitative and qualitative information about board designations on net assets, this is a good time to review existing board designations to determine if they are still relevant. You may also wish to have the board reaffirm those designations at a future meeting. There is no requirement for an organization to have board-designations on net assets. If there are none, be sure to document that fact. Remember, the organization will likely need written policies/practices regarding board designations on net assets, even if there are no designations.

Looking at potential revisions to your chart of accounts is just one action you can take now to prepare for implementation of the new financial statement presentation standard. Be sure to read Part II of this series, which covers recommended chart-of-accounts changes related to investment return, statement of cash flows and expense reporting, as the AICPA’s Not-for-Profit Section continues to keep you up-to-date on all things related to the FASB not-for-profit accounting standard.


Cheryl R. Olson, CPA, CGMA, Director of Not-for-Profit Consulting, Clark Nuber, PS. Prior to joining Clark Nuber, Cheryl was Director, Council Financial Consulting at the Girl Scouts of the United States of America. She volunteers on the AICPA Not-for-Profit Advisory Council and is an instructor for AICPA’s Not-for-Profit Certificate II, a video-based eLearning program for not-for-profit professionals and their business advisors.

Diane Shey, CPA, Lead Software Implementer, Clark Nuber, PS. Diane oversees deployment and training of various accounting and fundraising software programs. Her clients include not-for-profits, associations, foundations, as well as organizations providing healthcare, arts and recreation, and social services.

Client meeting courtesy of Shutterstock


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