Question

In the budgeting process for nonprofit organizations, why is it important to connect the budget line items with the chart of accounts? Provide some examples of how this helps organizations and risks to the organization if the connections are not made.

Answer 1

To ensure proper and effective comparison between budgeted and actual amount it is important to align and match budget line items with the chart of accounts which is the structure of the accounting system. If budget line items are not matched with chart of account it creates mismatch between the two which leads into extra work on part of accounting staff and result into inconsistencies and also reduce usefulness of the various reports financial in nature. For example majorly in case of expenses if mismatch exist between budgeted line items and chart of account it may report line items balances with errors and result in budget overages. Company should keep in mind while preparing budget for expense its budget line items should be reported in the way that they are able to cross-walk to the items reported for meeting outside reporting reporting like in IRS 990 industry surveys Data project. It will facilitate meeting reporting requirements and staff time can be effectively utilized.