Happy New Year!
How many expense accounts should I have per department? And if we simplify our chart of accounts to make recordkeeping easier, will that make our books inconsistent?
There is no right answer to how many accounts you should have but there are some principles and guidelines that will help.
First, don’t be afraid of losing detail. Most accounting systems allow you to “drill down” and get all the detail you want.
Secondly, don’t be concerned that the board will want additional detail. The board is responsible for the strategic direction of the organization and they need the big picture. When they receive too much detail it can distract them from their primary responsibilities.
The American National Red Cross, in their published financial statements, lists salaries and wages, employees benefits, and 6 other categories of management and general expenses. They have 24 categories of expenses in their form 990. That is with a breakout of their grants between local and domestic organizations, and a breakout of their payroll for officers and directors separate from other employees as well as a breakout of retirement costs from other employee benefits. They have only 19 categories other than payroll and benefits for more than $3 billion of annual expenditures.
So, if you organization has more than 15 categories, that’s a lot. If it is well over 15, you are probably doing unnecessary work and adding complexity without benefit.
Start by looking at any expense category that doesn’t have more than 1%-2% of your total expenses and determine whether it can be combined into miscellaneous or some other like category.
John F Heveron, Jr. Principal, Heveron and Company CPAs, Rochester, NY