Academy/Financial Statements for Non-Accountants
Chart of accounts
The numbered list behind every dollar your association records
A chart of accounts is the numbered list of every account an association's general ledger uses, organized in order: cash, then other assets, then liabilities, equity, revenue, and expenses. It's the filing system behind every board financial report, and every transaction gets coded to one of its accounts.
What a chart of accounts is
Every transaction your association records, an assessment payment, a landscaping invoice, an insurance premium, gets coded to one specific account. The chart of accounts is the numbered list of every account available for that coding, kept inside the general ledger.
"The chart of accounts is a listing of all accounts used in the general ledger of an organization."
Source: The chart of accounts, AccountingTools
The order is not random. Cash comes first, then other assets, then what the association owes, then equity, then revenue, then expenses, following the standard account-numbering convention. That is why "Operating Cash" is usually a low number and "Landscaping Expense" sits much higher. A bigger number does not mean a bigger dollar amount, it means a later category.
Why the order matters for reading reports
Every account in the chart of accounts feeds two other records. The general ledger is "the master set of accounts that summarize all transactions occurring within an entity," and every entry there points back to a number from the chart of accounts.
The trial balance then lists every account's ending balance to confirm total debits equal total credits, before those balances become the balance sheet and income statement your board actually reads each month. Get comfortable with the chart of accounts and both of those reports stop looking like a wall of numbers.
One list, two funds
Most associations split accounts into two groups inside the same chart. Operating fund accounts pay for what the community uses today: landscaping, insurance, payroll. Reserve fund accounts pay for what it will need tomorrow: a new roof, a resurfaced pool.
Keeping those as separate account blocks is what fund accounting is for. Fund accounting "ensures compliance with these restrictions by isolating these funds from unrestricted funds," so reserve money stays visibly apart from operating money instead of blending into one number. Ask your manager to show you exactly where that line falls in your own chart, most software marks it with a number range or a fund prefix.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
A report shows "Operating Cash" as account 1000 and "Landscaping Expense" as account 4200. Why does landscaping have the higher number?
Your treasurer says the chart of accounts and the general ledger are the same document. What's the accurate distinction?
Your association's chart of accounts has separate number blocks for operating fund accounts and reserve fund accounts. What is this designed to do?
Sources
- The chart of accounts, AccountingTools
- General ledger definition, AccountingTools
- Trial balance definition, AccountingTools
- Fund accounting definition, AccountingTools
Financial Statements for Non-Accountants
Next, see how these same accounts roll up into the two reports you'll actually read every month: the balance sheet and the income statement.
Account numbering conventions, and exactly how strictly your operating and reserve funds must stay separated, vary by management software and by your own governing documents and state law.