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Adding Economic and Information Theory to Technique - The Case of Using the Uniform Chart of Accounts for Building Entrepreneurial Nonprofit Organizations
Abstract
Integral to entrepreneurship in nonprofit organizations is finding more earned income to balance traditional philanthropy. An entrepreneurial context for nonprofit entities, however, tends to challenge the effectiveness of traditional nonprofit accounting systems. Frequently, these systems have lacked both uniformity and flexibility in organizing financial data at desired level of detail. Touted among the accounting reforms for entrepreneurial entities is the Uniform Chart of Accounts (UCOA). The UCOA allows for tracking various types of revenues and expenses by category such as grants, programs and departments. The level of detail permits a closer look at where cost or revenue problems might be located. The UCOA is also designed to automatically take account information (e.g., contributions, salaries and supplies) and report it according to Generally Accepted Accounting Principle (GAAP) as well as Internal Revenue Service reporting requirements, namely, Form 990. Recalling the accounting equation (Assets = Liabilities + Net Assets [revenues –expenses]), here is a simple outline of the UCOA for coding nonprofit transactions. 1xxx where 1= assets 2xxx where 2= liabilities 3xxx where 3=net assets 4xxx-xxx to 6xxx-xxx = revenues and associated activities 7xxx-xxx to 9xxx-xxx = expenses and associated activities The additional 3xs for the revenues and expenses are for programs and operations. The account numbers 7xxx-100 might be an expense for an adoption program. Following the same format, the account number 7710-100 might be a supplies expense for the adoption program, indicated by the 100. Revenues for the adoption program could also be tracked. Thus, with UCOA, a positive or negative change in net assets (“profit or loss”) can be assessed for the adoption program.
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