The chart of accounts is like a switchboard directory that assigns a discrete code to every transaction, asset, and liability.
It is used to organize the finances of the entity and to segregate expenditures, revenue, assets, and liabilities
in order to give interested parties a better understanding of the financial health of the entity. It tells an accounting system
where all of an organization’s financial data “goes” and is what enables that system to produce adequate financial statements, invoices, receipts, and reports.
Every financial transaction will “pass through” an account or accounts on the chart, which assigns the transaction’s codes
that show what type of transaction it is and what program or type of activity it is related to. Chart of account codes are also assigned to assets,
such as property and buildings, and liabilities, such as loans. A good chart of accounts allows for what is called “fund accounting,”
that is, the tracking of finances at the level of a particular funding source. This level of detail is important,
so that the reporting of income and expenses by source can be tracked. For example, suppose your organization has a tenant-based rental assistance program
that combines HOPWA, HOME, and Continuum of Care resources into a single program.
For reporting and documentation purposes, your organization would need to be able to readily produce information
that sorts and aggregates expenditures and receipts related to each of those funding sources.