Switch branches/tags
Nothing to show
Find file Copy path
d376f17 Aug 22, 2017
3 contributors

Users who have contributed to this file

@bkuhn @tbm @fiatflux
577 lines (417 sloc) 25.4 KB

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 is 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 Expenses:.

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 All Transactions

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 documentation is included for each financial transaction that occurs for the organization.

Note that since Ledger CLI is a complete double-entry accounting system, each transaction can correspond to multiple entries in the general ledger. The data entry format of Ledger CLI lists each double-entry accounting transaction in a text file.

Documentation may in fact differ for entries within the transaction. Ledger CLI's tagging structure is flexible in this regard: each portion of a double-entry transaction can carry the same tag or a different tag. For example, in this entry:

2012-05-03 Sir Moneybags
        ;Entity: Sir-Moneybags
        ;Invoice: accounts/documentation/org/invoices/2012-05-30_moneybags-invoice_as-sent.txt
    Accrued:Accounts Receivable:Conservancy  $100,000.00
    Income:Main Org:Donations               $-100,000.00
        ;IncomeType: Donations

The portion of the transaction that credits the Income:Main Org:Donations has three tags: Entity, Invoice and IncomeType. The Entity and Invoice tags, since they're listed at the top of the transaction, propagate through and apply to both sides. But, the IncomeType tag, which has no meaning for Accrued: accounts, so it is applied only to the Income:Main Org:Donations part of the transaction.

Below you'll find detailed descriptions of all the possible tags that are used in this system. The actual declarations and enforcement of rules of these tags can be found in the file accounts/config/config-tags.ledger in this project.

Documentation Tags

Documentation tags are tags that link to other backup documents that provide evidence and details that justify a particular ledger entry. 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
     Expenses: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.

Receipt Tag

The Receipt: tag refers to receipt of some sort. Typically, this is a document that shows clear confirmation that the transaction has already occurred. The value of the Receipt: tag is always a valid pathname in the repository to the document, as described above.

Some examples of appropriate uses of the Receipt: are:

  • a point-of-sale credit card receipt from a purchase, given by a cashier or sent via email after the purchase has occurred.

  • a deposit slip given at the bank upon making an over-the-counter deposit of paper checks.

  • a confirmation document showing an outgoing wire transfer made by a bank.

  • a confirmation document showing transfer of funds between two bank accounts.

  • A pay advice document generated upon payment of an invoice.

Invoice Tag

The Invoice: tag refers to an actual invoice, either generated by the organization or received by the organization. Typically, this is a document that is a request for payment, rather than documenting an actual payment that has occurred. The value of the Invoice: tag is always a valid pathname in repository to the document, as described above.

Some examples of appropriate uses of the Invoice: tag are:

  • an actual invoice as sent by a vendor to the organization.

  • a request for payment sent by the organization to someone else.

  • a reimbursement request submitted by an employee, contractor, or volunteer for expenses they've already incurred and would like the organization to reimburse (e.g., an expense report, requesting for reimbursement of travel expenses).

Statement Tag

The Statement: tag refers to any sort of written statement received from an external party (or even perhaps generated internally) that provides document, insight, or other information about the transaction. The value of the Statement: tag is always a valid pathname in the repository to the document, as described above.

Some examples of appropriate uses of the Statement: tag are:

  • bank statements, as received from the banking institution.

  • written reports of travel.

  • blog posts made by a contractor documenting their work.

  • written organizational policies about the expense.

  • just about anything that is clearly not an invoice nor a receipt, but definitely is valid backup documentation for the transaction.

TaxReporting Tag

The TaxReporting tag is an optional tag for Assets accounts that debit to the account.

When provided, the TaxReporting accompanies a TaxImplication information tag. The TaxReporting refers to a document that verifies the choice for the TaxImplication tag. For example, for individual contractors in the USA, a TaxImplication of 1099 would be well served by a TaxReporting that links to a W-9 for the individual being paid. For a individual foreign contractor, the TaxReporting might link to a W8-BEN for the payee.

Information Tags

In contrast to documentation tags, information tags can more traditionally be considered pure "meta-data" for a ledger entry.

Entity Tag

The Entity: tag is required for many types of ledger entries. The value of the Entity: tag is a unique moniker that identifies the organization, company, person, or legal entity that is the external party for the transaction.

Note that there is no database of these monikers, so typos can cause trouble. However, you could implement checks in accounts/config/config-tags.ledger using a regular expression to verify no typos have occurred. This would be somewhat cumbersome, since Ledger CLI would likely require that the monikers be encoded into a regular expression. Barring that, the integrity of your data should be periodically checked.

IncomeType Tag

The IncomeType: tag is used for all Income: accounts. This refers to the type of income. The value of the IncomeType: tag is always a string. Since this particular system is designed for USA non-profit entities who file USA Form 990, the following IncomeType values are supported:

  • Donations, which refers to standard charitable donations.

  • RBI, which refers to "related business income".

  • UBTI, which refers to "unrelated business taxable income.

Not that donor-advised funds and government grants don't currently have their own IncomeType. It's possible this might be necessary; the authors aren't familiar with how to handle those items on the Form 990. It would be a relatively simple change to config-tags.ledger, though, to support other income types, or to change it entirely to handle use-cases other than USA Form 990 filing.

TaxImplication Tag

The TaxImplication: tag is used for all Asset: accounts when the transaction includes a payment of $10.00 or more leaving the account. This tag catalogs any tax implications that might occur on outgoing funds.

The most important USA-related issue tracked by this tag are contractors who must have annual 1099 and/or W2 issued. An Entity: tag should always go along with a TaxImplication tag.

The possible values for this field are:

  • 1099, indicating the amount paid requires issuance of a USA Federal Form 1099 for the Entity involved.

  • W2, indicating the amount paid will be part of a USA Federal income, as reported on Form W2 report for the Entity involved.

  • Retirement-Pretax, indicating the amount paid was made to a W2 employee as part of pre-tax retirement plan, such as a 401(k) or 403(b) plan.

  • Accountant-Advises-No-1099, indicating that the circumstances and rules seem to indicate a USA Federal Form 1099 should be issued for the Entity involved, but an outside accountant advised that no 1099 need be issues for this Entity.

  • Bank-Transfer, indicating that the amount is a transfer between two banking accounts under the control of the NPO itself.

  • Foreign-Individual-Contractor, indicating that the NPO has established that the Entity is a contractor residing outside the USA who is not a USA citizen and does not for any reason pay taxes in the USA.

  • Foreign-Corporation, indicating that the NPO has established that the Entity is a corporation outside the USA.

  • USA-Corporation, indicating that the NPO has established that the Entity is an incorporated entity the USA (i.e., "Inc."), and therefore no 1099 is required.

  • USA-501c3, indicating that the NPO has established that the Entity has federal 501(c)(3) status in the USA, and therefore no 1099 is required.

  • Refund, indicating that the amount is a refund owed to the Entity from an amount previously paid to the NPO.

  • Reimbursement, indicating that the amount is a reimbursement of expenses incurred by the Entity and thus it is not income to the Entity.

  • Tax-Payment, indicating this is a tax payment to a taxing authority (such as the state or federal government) (e.g., a unrelated business income tax payment).

  • USA-LLC-No-1099, indicating that the Entity is an LLC, but not the type of LLC for which the USA requires issuing a 1099.

  • Loan, indicating that the Entity is receiving these funds as a loan that is expected to be paid back.

Program Tag

The Program tag is used primarily to track program activity for Income: and Expenses: accounts. This allows for knowing what particular initiative initiated the income (e.g., a specific fundraising campaign) and/or what particular program activity an expense is toward (e.g., funding travel to some specific conference).

The Program tag is always a string with the same format as a Ledger CLI account (primarily for use with Ledger CLI's --pivot and --group-by, as described later).

GrantLocation Tag

The GrantLocation tag is used to indicate that an expense is a grant. The value for the tag should indicate the geographical region. It is recommend that the geographical reason be identified with the ISO 3166-2 two letter country code for the country where the grant goes.

This tag is to assist in filing Form 990, Schedule I and Schedule F.

Account Type Documentation Requirements

Each account type has different documentation requirements. Based on the type of the account, it requires a different set of tags.

When Ledger CLI's --pedantic option is used, these rules are enforced by ledger itself via the configurations found in config-tags.ledger and config-accounts.ledger.

Expense Account Documentation

Each Expenses: account entry must be tagged with the following tags:

Expense accounts can have the following optional tag:


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.

Income Account Documentation

Each Income: account must have the following tags:

  • One of: Invoice:, PurchaseOrder:, Statement: or Contract. Exceptions to this requirement are as follows:

    • the income generated from the transaction is less than $800, or
    • the IncomeType is RBI and the income is for a defined, public program (such as conference registration)
  • An Entity: tag, iff. the Income for the transaction is for more than $800.

  • An IncomeType: tag.

  • A Program: tag.

Reports For Various Situations

When data is well formed as specified herein, there are various quick reports that can be used to verify certain conditions or issues with accounting. Here are a few examples:

Verifying That An Invoice Is Paid

Assume for this example that the shell variables entity, program, and invoice are set as follows:

$ entity=Sir-Moneybags; program='Main.*Org:.*Direct'; invoice=2012-05-30

If the invoice was paid, this ledger command will have two lines of output, and the second line will be a transaction on the payment date. If only one line appears, it's the receivable accrual and we see the invoice is not paid.

$ ledger -f accounts/books.ledger  -V --sort d --limit 'tag("Entity") =~ /'$entity'/ and tag("Program") =~ /'$program'/ and tag("Invoice") =~ /'$invoice'/' reg /Accrued/

Alternatively, the following command will only have output if the invoice is unpaid:

$ ledger -f accounts/books.ledger  -V --limit 'tag("Entity") =~ /'$entity'/ and tag("Program") =~ /'$program'/ and tag("Invoice") =~ /'$invoice'/' bal /Accrued/

Calculating Donation Portion of Invoice

As described in IRS 501(c)(3) rules, a charity must substantiate portions of a contribution that are RBI, and portions that are donations separately and inform the donor which portion was a donation that may be eligible for tax deduction. Use of the IncomeType tag facilities collection of the necessary data to determine the total, and the following command line will total up all the donation portions for a particular invoice:

$ entity=BigCorp; program=Foo.*Conf.*2017; invoice=2016-01-30
$ ledger -f accounts/books.ledger  -V --sort d --limit 'tag("IncomeType") =~ /Donation/ and tag("Entity") =~ /'$entity'/ and tag("Program") =~ /'$program'/ and tag("Invoice") =~ /'$invoice'/' reg

Analysis of the Data

If this methodology is followed, Ledger can be used to analyze the financial data for the organization.

Testing Program Success

If you use the Program tag effectively, you can easily test the successes of various fundraising programs with a command like this:

$ ledger -f accounts/books.ledger --pivot Program bal '/^Income/'

Meanwhile, using the Program tag for Expenses can help track what programs are costing with commands like these:

$ ledger -f accounts/books.ledger --group-by 'tag("Program")' reg '/^Expenses/'

FIXME: example output

Checking Integrity of a Tag

As mentioned, the Entity: tag is one example among many where the value is a wide range, but since Ledger CLI isn't backed by a more complete ERP system, it's possible during data entry for typos to make a serious problem. One work around to this flaw is to periodically run a command like:

$ ledger -f accounts/books.ledger -F '%(tag("Entity"))\n' reg|sort|uniq|less

which will show all unique Entity: values currently in use.

Copyright and License of This File

This specific document, the 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.