Build Your Chart of Accounts

Charts of Accounts are essentially a listing of the various categories for income, expenses, asset, liabilities, and net assets associated with the finances of an organization. While the exact configuration of the line items on a chart of accounts may vary slightly from one entity to another, there are a few basic categories that will be found in just about every accounting ledger.

If your church is not associated with a diocese or parent organization that has mandated you use a static or standard chart of accounts, and if you did not convert your previous application data into ParishSOFT Accounting, you will need to design your own Chart of Accounts.

If you have not previously designed a chart of accounts, start by reviewing the Statement of Activities (a.k.a. Income Statement or Profit & Loss Statement) and Statement of Financial Position (a.k.a. Balance Sheet) from your old software, as these reports usually contain all of the information you need.

Before you can enter your accounts, you must first review and design the Account Code Levels: Account Type, Entities, Levels, and Sub Accounts.

Account Types

The Account Type defines the type of account you’re working with.  There are six account types:

• Asset – What I have
• Liability – What I owe
• Income – What I’ve gained/new money
• Expense – What I’ve lost/spent
• Net Asset – What I’m worth
• Dedicated – of my assets, what’s not really mine
  

Entities

An entity refers to the various entities you may have that operate within your overall church. Each entity you create will have its own chart of accounts, which includes Assets and Net Assets, and may include: Income, Expense, Liability and Dedicated Accounts

For example, you may want to include an entity for:

• Church Operations
• School
• Cemetery

Entities Setup lets you define the name and code number of each Entity.

1. Click the Setup
2. Click Entities.
3. Enter the Description and Code.
   
4. Click Submit to save.

Entities that you add to your system can be assigned to specific accounts.

Levels

ParishSOFT Accounting utilizes a multi-level account code structure that supports multiple entities, categories, cost centers, and accounts.  These relationships are easy to define and flexible enough to allow the church to modify or expand the account structure as needed.  With the multi-level account code structure, the church can report on any level(s) of the organization as desired.

As you review the Income Statement and Balance Sheet from your previous application, look at how the various accounts are grouped together.  When you define the Levels, you will be determining how each account is grouped and sub-totaled.  Think of the Level as a “group header.”

While you can have up to five levels of grouping, you are not required to use all five.  If yours is a smaller church with a limited Chart of Accounts, you may only use a single level for each account.

Larger churches with a complex chart of accounts may choose to use multiple levels when defining their chart of accounts.

Define Levels for Asset, Liability and Net Asset Accounts

Within your chart of accounts, you will need to define the levels of your Assets, Liabilities and Net Assets.  The Levels that you assign will be what determines the sort and sub-total on your Statement of Financial Position (a.k.a. Balance Sheet) report.

Under the Asset, Liability, Net Asset section, type a Description and choose the desired number of Digits for each Level for your Asset, Liability, and Net Asset accounts.

1. Click the Setup
2. Click Define Account Code Levels.
3. Under the Asset, Liability, Net Asset section, type the Description of “Natural Account” at Level 1 and choose the desired number of Digits for each Level for your Asset, Liability, and Net Asset accounts; enter 2 digits.
4. Select the desired number from the Sub-Accounts Digits field. Recommend 2 digits.
5. Click Submit to save
6. Click the Define Levels button next to the Level 1 under the Asset, Liability, and Net Asset section.
7. Enter the Description and Code for the Levels desired and click Submit.
   

Asset, Liability and Net Asset Account Level 1 Examples

The following are some examples of Level 1 descriptions for the Asset, Liability, and Net Asset section. 

Add New Asset, Liability, Net Asset Accounts

Now that you have the Entity and Levels set up for the Asset, Liability and Net Asset codes, let’s start entering those accounts.

• Click Accounts.
• Click New Account.
• Type the Description of your church checking bank account name (e.g., Lakewood Bank - Church).
• Select the Account Type Asset from the lookup.
• Enter the Shortcut number 1000.01C for the account. We recommend you utilize the same number as the Natural Account to start the Shortcut number. If you feel you may have additional similar accounts (i.e. multiple church checking accounts) enter the sub-account after the Natural Account separated by a period.  You may also enter alphabetical characters in the shortcut to identify the Entity or Department.
• Choose the Entity Church Operations from the lookup table.
• Choose the Natural Account Checking & Petty Cash from the lookup table.
• The system will automatically enter the Sub-Account—the last field of the account code. The Sub-Account field is available to make the account unique if you have two accounts with the same type, Entity, and level(s). You can change this number if needed.
• Check the Bank Account box in order to make this account available to print checks and for the system’s Bank Reconciliation process.
• Click the Submit button to save. Your new account will now be available for transactions.
  

Don’t forget to click New Account after Submitting the Last Account entered!

 Notice how the Shortcut Number and Sub-Account number fill in for you!  You just need to remember to change the Shortcut Number when you switch from Assets to Liabilities to Net Assets.  Once you’ve established your Shortcut numbers for the various account types, the system will prompt you with the next available number. 

Statement of Financial Position (a.k.a. Balance Sheet)

Now that you’ve entered the accounts, let’s check your work!

• Click Reports.
• Click Statements → Statement of Financial Position.
• Scroll to the bottom of the display and click Preview Report.
• Notice how the accounts are grouped together; the Checking and Petty Cash accounts and the Payroll Withholding Accounts are listed individually yet sub-totaled.

As you are entering the Chart of Accounts for your church, consider how you would like the accounts grouped together on your Financial Statements.  The Grouping would be considered a “Level.”

Define Levels for Income, Expense and Dedicated Accounts

Within your chart of accounts, you will need to define the levels of your Income, Expense, and Dedicated Accounts.  The Levels that you assign will be what determines the sort and sub-total on your Statement of Activities (a.k.a. Income Statement) report.

Under the Income, Expense, and Dedicated section, type a Description and choose the desired number of Digits for each Level for your Income, Expense, and Dedicated accounts.

NOTE:  Most smaller churches find that a single level with 3 to 4 digits is sufficient under the Income, Expense and Dedicated section; medium size churches may find that two levels with 2 to 4 digits allow them more flexibility in reporting, while larger churches find that three levels with 3 to 4 digits give them the most flexibility in reporting.

For training, we will use the setup for a medium-size church and utilize two levels.

The most common terms used in this section are the Department (or Category), Cost Center, and Accounts.

1. Click the Setup
2. Click Define Account Code Levels.
3. Under the Income, Expense, and Dedicated section, type the Description of “Department” at Level 1 and choose the desired number of Digits for each Level for your Income, Expense, and Dedicated accounts; enter 2 digits.
4. Under the Income, Expense, and Dedicated section, type the Description of “Natural Account” at Level 2 and choose the desired number of Digits for each Level for your Income, Expense, and Dedicated accounts; enter 4 digits.

NOTE:  Most smaller churches find that a single level with 3 to 4 digits is sufficient under the Income, Expense and Dedicated section; medium size churches may find that two levels with 2 to 4 digits allow them more flexibility in reporting, while larger churches find that three levels with 3 to 4 digits give them the most flexibility in reporting.

5. Select the desired number from the Sub-Accounts Digits field. Recommend 2 digits.
6. Click Submit to save.
7. Click the Define Levels button next to the Level 1 Department under Income, Expense, and Dedicated section.
8. Enter the Description and Code for the Levels desired and click Submit.
   

Level 1 – Department

9. Click the Define Levels button next to the Level 2 Natural Account under Income, Expense, and Dedicated section.
10. Enter the Description and Code for the Levels desired and click Submit.
    

Level 3 – Account

Add New Income, Expense, and Dedicated Accounts

Now that you have the Entity and Levels set up for the Asset, Liability, and Net Asset codes, let’s start entering those accounts.

1. Click Accounts.
2. Click New Account.
3. Type the Description of your weekly offering, such as Offertory.
4. Select the Account Type Income from the lookup.
5. Enter the Shortcut number 40001GEN for the account. We recommend you utilize the same number as the Natural Account to start the Shortcut number. If you feel you may have additional similar accounts (i.e. multiple church checking accounts) enter the sub-account after the Natural Account separated by a period.  You may also enter alphabetical characters in the shortcut to identify the Entity or Department.
6. Choose the Entity Church Operations from the lookup table.
7. Choose the Department General from the lookup table.
8. Choose the Natural Account Offertory from the lookup table.
9. The system will automatically enter the Sub-Account—the last field of the account code. The Sub-Account field is available to make the account unique if you have two accounts with the same type, Entity, and level(s). You can change this number if needed.
10. Click the Submit button to save. Your new account will now be available for transactions.
    

Don't forget to click New Account after Submitting the Last Account entered!

Notice how the Shortcut Number and Sub-Account number fill in for you!  You just need to remember to change the Shortcut Number when you switch from Income to Expenses to Dedicated.  Once you’ve established your Shortcut numbers for the various account types, the system will prompt you with the next available number.

Statement of Activities (a.k.a. Income statement) 

Now that you’ve entered the accounts, let’s check your work!

1. Click Reports.
2. Click Statements > Statement of Activities.
3. Under Define Report Group Sections and Sorting, set the Group Section 1 to Department.
4. Scroll to the bottom of the display and click Preview Report.
5. Notice how the accounts are grouped together; the General and Administrative accounts and the Religious Education accounts are listed individually yet sub-totaled.
6. Click the Back button on your internet browser to get back to the report selection display.
7. Under Define Report Group Sections and Sorting, set the Group Section 1 to Account.
8. Scroll to the bottom of the display and click Preview Report.
9. Notice how the accounts are now grouped together; the Donations, General accounts, and the Rental Income accounts are listed individually yet sub-totaled. 
   
10. Click the Back button on your Internet browser to get back to the report selection display.
11. Under Activity Account Dimension Filters, click the Department Religious Education.
    
12. Scroll to the bottom of the display and click Preview Report.
13. Now you can see only those accounts related to the Religious Education department. This type of report would go to your Director of Religious Education.
    

Sample Account Code Levels

Due to time constraints in training, we can only enter a small sampling of accounts. The following is a complete sample list of levels and accounts that you may choose to incorporate into your church's chart of accounts.

Asset, Liability, Net Asset Account Levels 

Income, Expense and Dedicated Account Level Examples

The following are examples of tri-level account structure codes for the Income, Expense, and Dedicated Account Types generally used by larger churches.  If you are a medium-size church, you may choose not to utilize the Cost Center concept and only use Department/Category and Accounts.  If you are a smaller church, you may choose to not utilize the Department and Cost Center concept and only use the Accounts.

Only enter the codes that would be appropriate for your church.  Levels and Accounts may be added, changed, or deleted (if not in use) at any time.

Level 1 – Department

 Level 2 – Cost Center

Level 3 – Natural Account

Related Articles

About Projects Projects allow you to track special events without adding new general ledger accounts. Project Groups allow you to get reports on specific categories such as festivals, temporarily restricted funds, etc. 

Add an Account (not part of a diocese)

Add an Account when part of a Diocese

Updated June 29, 2023 18:16