What is Accounting?
This lesson will introduce you to what accounting is and how you can apply it every day. In this video we will walk you through the different types of accounts and show you why nonprofits need fund accounting.
In short, it is the process of keeping track of your stuff. It can help you understand your organization better and maintain accurate financial records. It can be broken down into five primary things to keep track of:
- things you own
- things you owe others
- ways you get money
- ways you spend money
- your overall worth
It’s likely you use accounting every day and don’t realize it. You have money in your bank account, you receive a paycheck which gives you more money, and you make purchases that spend that money. You may also have debt. All these things affect your overall worth.
Keeping track of the five things listed above requires us to have a system in place. This is where accounts come into play.
What Are Accounts?
By creating your list of accounts (commonly called a chart of accounts) you can begin to track these things in detail. A chart of accounts is used in an accounting system, which we will explain at the end of this lesson. Since there are five areas you’re keeping track of, we have five types of accounts that represent the following:
- things you own = asset
- things you owe others = liability
- your overall worth = equity
- ways you get money = income
- ways you spend money = expense
Why Do You Use Accounts And Accounting?
Also commonly known as bookkeeping, it is an essential part of running a successful business, church, or nonprofit organization. In addition to the five accounts above, using a system or software can also help you:
- develop a budget
- identify trends of income or spending habits
- provide accurate financial statements to your board
- maintain transparency for those involved with your organization
The biggest benefit of all is your confidence. By understanding where your organization stands financially, and keeping an accurate record, you can focus 100% on your mission.
Systems And Software
An accounting system is an environment you create to keep track of all the financial information within your organization, including your accounts and transactions. It also needs to let you generate reports. This is most commonly done through a software like Aplos, QuickBooks, Excel, etc.
In addition to tracking accounts, transactions, and generating reports, an accounting system also has rules and standards for efficiency. There are infinite needs and unique features that can differ from one organization to another. During this course we will highlight seven areas a nonprofit needs to focus on when implementing this system.