A different version of the Chart of Accounts
You have seen chart of accounts prepared both according to GAAP and IFRS in many places, are structures that I am also used to. But, what I’ll try to explain now, it may sound a little more complicated than what you’ve seen before. Because I’m going to bring up a chart of account used in charter school accounting.
If you do not work in a charter school or do not work in an audit company that inspects those entities, you may say; “what good does that do me?” But never forget that everything learned opens the horizons of people and offers new perspectives to the problems encountered.
The accounting system is comprised of the general ledger and subsidiary ledgers through which financial transactions are recorded during the actual operation and in accordance with the state Administrative Code, and maintain a uniform system of financial bookkeeping and reporting that is consistent with GAAP. These two sources which are both Financial Accounting for Local and State School Systems issued by the National Center for Education Statistics (NCES) and the Uniform Minimum Chart of Accounts issued by New Jersey Education of Department were used while writing this article.
For each type of transaction, the specific account code is made up of a combination of classifications called dimensions. Each dimension describes one way of classifying financial activity. Each component of the dimensions in the accounting system are numbered and defined. Governmental accounting systems should be organized and operated on a fund basis. The diverse nature of governmental operations and the necessity of assuring legal compliance preclude recording and summarizing financial transactions in a single accounting entity.
Fund Classifications: There are three groups of funds for which financial statements are prepared—governmental, proprietary, and fiduciary.
- Student Activity Funds are to be reported in the Special Revenue Fund,
- Scholarship Funds are to be reported in the Special Revenue Fund,
- Unemployment Trust Fund is to be reported in the General Fund, and
- Payroll Agency and Flexible Spending Accounts are to be reported in the General Fund
Revenue Classifications: Revenues are generally classified by four major sources: local, intermediate, state, and federal. Within each source of revenue, individual items of revenue are classified into basic groupings of similar types of revenue such as taxes or tuition. These group headings are not account titles; they are used only as a convenient means of identifying specific revenue accounts.
Expenditure Classifications: Expenditures include total obligations incurred, whether paid or unpaid, for current expense, capital outlays, debt service and intergovernmental grants, entitlements and shared revenues.
Function: The function describes the activity for which a service or material object is acquired. The functions of an LEA are classified into five broad areas:
Object: This dimension is used to describe the service or commodity obtained as the result of a specific expenditure. There are nine major object categories, each of which is further divided. The following are definitions of the object classes and selected sub object categories:
Location: The location code identifies the individual schools of the district. This is mandatory for districts with schools that prepare school-based budgets, and for financial reporting under the Every Student Succeeds Act (ESSA). Required maintenance under Education Facilities Construction Financing Act (EFCFA) is required to be reported by school facility.
Balance Sheet: These classifications correspond to the items normally appearing on the balance sheet.
Estimated Revenue; It is integrated into the accounting system in order to compare the actual revenues and expenditures to the budgeted amounts at any point in time. The importance of this procedure is to prevent overspending. Revenue accounts consist of control accounts as well as individual accounts. The control accounts are used to record the aggregate amount in the general ledger while the detail of the control account is recorded in a subsidiary ledger by individual accounts. The revenue subsidiary ledger is used to record the details of the control accounts and should include estimated and actual revenues.
Estimated Revenues (Control Account / Normal Debit Balance). The amount of revenues estimated to be received or to become receivable during the fiscal period. This account is debited to record the adoption of the annual budget. At the end of the fiscal period this account is closed out and does not appear in the balance sheet. It would only appear in interim financial statements
Revenues; The total of all revenues realized during a period. This includes receivables for revenues whose actual collections will not differ from the amounts in the certified budget (tax levy and state aid) as well as actual receipts of other types of revenue. At the end of the fiscal period this account is closed out and does not appear in the balance sheet. It would only appear in interim financial statements.
Budgetary Accounts (Expenditures); these accounts reflect budgeted and actual amounts related to expenditures and encumbrances. Budgetary accounts are integrated into the accounting system in order to compare the actual revenues and expenditures to the budgeted amounts at any point in time. The importance of this procedure is to prevent overspending.
The Minimum Chart of Accounts; The chart of accounts classification structure (particularly the expenditure classifications) can generate a variety of detailed data. Hence, a school entity may choose in some ways which parts of the system it needs or wants to use. But, whatever course a school entity chooses, it must follow a certain minimum list of these classifications to meet state reporting requirements. Dimensions, accounts, and coding structures listed in this chart of accounts are minimum requirements unless labeled as optional.
Some practices to identify the account:
Expenditures; Fund – Program and Project/Reporting – Function – Object – Location
20-456-200-400 Special Fund – Other Federal Projects (ARRA) – Support Services – Purchased Property Services.
Revenues; Fund – Revenue Source – Program and Project/Reporting – Location
10-1720-475 General Fund – Bookstore Sales – Student Activity Fund
Balance Sheet; Fund – Balance Sheet Account
10-101 / 20-101 General Fund – Cash in Bank / Special Fund – Cash in Bank
