npo-ledger-cli/npo-ledger-cli-tutorial.md

Non-Profit Accounting With Ledger CLI, A Tutorial

Non-profit organizations (NPOs), particularly 501(c)(3) charities in the USA, have their own specific accounting needs. These often differ from for-profit accounting needs. For example, for-profit-oriented systems often make problematic assumptions about the workflow of accounting tasks (often because NPOs rely primarily on donations, rather than fee-for-service or widget-selling income). Also, non-profit income is categorized differently than for-profit income, and the reporting requirements vary wildly from their for-profit equivalents.

This project is designed to provide some basic templates, tutorials, workflow documentation and scripts to handle accounting for an NPO. The primary example is a direct project (aka Model A) fiscal sponsor NPO.

This tutorial was written primarily based on Software Freedom Conservancy's use of Ledger CLI from 2008-10-22 to present for its own accounting needs. While Conservancy has done well using this system, and believes that its account system meets Generally accepted accounting principles (GAAP), this document does not constitute advice from a CPA nor legal advice for a non-profit that seeks to comply with relevant state and/or federal accounting requirements for USA non-profits. The authors make no representations nor warranties regarding this information and this information is provided for discussion purposes only. Readers of these tutorial and templates are urged to seek professional advice from a CPA and/or tax legal counsel in constructing an accounting system appropriate for your organization.

Furthermore, given the authors' limited knowledge of accounting requirements outside the USA, the suggestions herein probably are not particularly useful at all for organizations outside the USA.

Configuration of Chart of Accounts

The first thing any accountant will ask to see if your so-called "chart of accounts". The first time I heard this phrase, I thought it was something complicated. Fact of the matter is, it's really just a list of all the accounts that you use. Accountants also use "account codes", which, as near as I can tell, are of primary interest because they get better sorting. Ledger CLI doesn't really support account codes, so I've ignored them.

The real place that Ledger CLI stores your chart of accounts is if you use the account directive along with the --pedantic CLI option. This will ensure that only accounts you declared explicitly will used.

Asset Accounts

Asset accounts represent anything that's owned. Typically, these are primarily your cash accounts, or anything that's completely liquid.

Many accounting tutorial materials will note that Loans, accounts receivable and other receivables are assets as well. Most accountants will say that they are, but with regard to accounts called "Assets", this system uses the account hierarchy Assets: only for tangible, liquid, cash and/or cash-equivalent assets. You'll find that account hierarchy commonly in the examples herein.

Liabilities Accounts

Similar to assets, most accountants will point out that any amount owed to someone else is a liability, and that is of course accurate. Like with the Assets: hierarchy, this system uses Liabilities: hierarchy only to refer to formalized accounts, such as credit cards, where a monthly statement is sent and have an ongoing liability relationship with the organization.

Accrued Accounts

For items that are receivable or payable, this system uses Accrued: hierarchy. Under this top-level account, you'll find accounts payable, accounts receivable, loans payable and loans receivable.

Expense Accounts

These accounts contain any expense of the organization, and all begin with Expense:.

Income Accounts

These accounts contain any income of the organization, and all begin with Income:.

Unearned Income Accounts

Unearned Income: accounts are used to refer to revenue that is currently received for services which have not yet been delivered. The most typical and common place an NPO encounters this type of income is for conference registrations. Since conference registrations arrive in advance of the conference, it is not proper under accrual accounting to call it income until such time as the conference successfully completes.

Reporting The Chart of Accounts

The general-ledger-report.plx script in the non-profit-audit-reports Ledger CLI contrib directory will generate a file called chart-of-accounts.csv, which is the chart of accounts.

The main command-line program though, that generates the chart of accounts looks like this: $ ledger -f accounts/main/books.ledger -V -F "%-150A\n" -w -s -b 2012/01/01 -e 2013/01/01 reg

Note that this is bound by date. Typically, it makes sense to list your chart of accounts for a specific period (e.g., your fiscal year), since your accounts might have some cruft in them from previous years that should now be ignored. (For example, if your organization simplified its chart of accounts in later years, you don't want to report those old accounts that are no longer used.)

Handling Fiscal Sponsorship

NPOs that do not provide fiscal sponsorship services will find this section somewhat useless. One of the biggest benefits of Ledger CLI is its incredible flexibility that just does not exist in other accounting systems. This section describes how to exploit that flexibility to provide a separation in your books and reporting to handle earmarked accounts for fiscally sponsored projects.

NPOs that don't need this feature can, in most cases, use the methods described herein to deploy Ledger CLI, but should leave out the :General: and :ProjectNAME: parts of the account hierarchy, since these are the primary mechanisms used herein to handle the fiscal sponsorship structure.

Earmarked Accounts

Many fiscal sponsor NPOs keep earmarked accounts for their member/affiliated projects. Furthermore, these projects often may either (a) terminate their agreement with the NPO, and thus deserve a copy of their books that they can "take away" with them, or (b) might be affiliated with other NPOs that also hold accounts. This system of earmarked accounts is designed to make it easy for projects to have a copy of their own accounts, but not interfere with nor even be aware of (a) the books of other member/affiliated projects, and (b) the overall books of the entire NPO.

On the latter point, this system utilizes a directory structure and separate .ledger files to separate out the different projects into different structures. This allows member/affiliated projects to take their data and run ledger commands against it, separately and without access to the other .ledger files of the NPO.

Proper Documentation For Accounts

Ledger CLI offers a flexible structure of tagging any entry, including separate tags for parts of a split transaction. This system uses those tags to ensure proper entry is included.

Expense Account Documentation

Each Expense account entries need to be tagged with an Invoice, Receipt, or Statement tag. The value of the tag is a relative path name of a file elsewhere in the same repository that documents the specific expense. For example, an entry like this:

 2012-02-05 Office Supply Galore - Online Order
     Expense:Main Org:Office Supplies      $35.00
         ;Receipt: accounts/documentation/org/receipts/2012-02-05_office-supply-galore.txt
     Liabilities:Credit Card:Visa         -$35.00

shows that a purchase was made at Office Supply Galore's online store for $35.00, and the file accounts/documentation/org/receipts/2012-02-05_office-supply-galore.txt contains the receipt from that purchase.

payee with "NEVER CHARGED"

The only exception to the standard tagging requirement is when the payee has been modified to indicate that the expense was NEVER CHARGED. This is an historical special-case. The solution was originally design for the following scenario:

Suppose an expense was expected — for example, a situation where you gave a credit card number to charge something and the charge never came through — but it turns out the charge never happened.

The recommended way to resolve this problem in the system is to just delete the entry entirely from the Ledger file, and allow the VCS to log the fact that the charge was expected, but the vendor never billed the credit card.

The reason the NEVER CHARGED payee text was added was to handle the situation where the books included this charge, but the books were already closed for the financial period (e.g., the books had already been audited). Changing the payee was a method for documenting the expense. You might use it like this:

2011/05/28 My Bad Billing Hosting - NEVER CHARGED
    Liabilities:Credit Card:Visa            $-100.00
    Expenses:Conservancy:Hosting             $100.00

2012/01/01 My Bad Billing Hosting - REVERSAL - NEVER CHARGED
    Liabilities:Credit Card:Visa             $100.00
    Expenses:Conservancy:Hosting            $-100.00

However, going forward, you'd likely never enter anything the ledger until you had real proof via an Invoice, Receipt or Statement that showed the Expense did/should occur. This use of NEVER CHARGED in the payee is thus deprecated.

Copyright and License of This File

This specific document, the README.md file for npo-ledger-cli, is copyrighted: Copyright © 2013, Bradley M. Kuhn

This document's license gives you freedom; you can copy, modify, convey, propagate, and/or redistribute this software under the terms of either:

* The GNU General Public License as published by the Free Software
  Foundation, Inc.; either version 3 of the License, or (at your option)
  any later version (aka GPLv3-or-later).

* *or* the Creative Commons Attribution-ShareAlike 3.0 United States
  license, as published by Creative Commons, Inc. (aka CC-By-SA-USA-3.0)

In addition, when you convey, distribute, and/or propagate this document and/or modified versions thereof, you may also preserve this notice so that recipients of such distributions will also have both licensing options described above.

A copy of GPLv3 and CC-By-SA-3.0-USA can be found in the same repository as this file under the filenames GPLv3.txt and CC-By-SA-3.0-USA.txt. If this document has been separated from the repository, a copy of GPL can be found on FSF's website and a copy of CC-By-SA-USA-3.0 can be found on Creative Commons' website.