Lesson 1 – Breaking down financial transactions: Who, What and Why

It is important that your accounting system answers the Who, What and Why for every financial transaction. Many nonprofits mistakenly classify expenses only on the ‘who’ element, focusing on the funding source rather than ‘what’ the expense was incurred for. If used correctly, functional accounting can classify all three elements of the ‘who’, ‘what’ and ‘why’ with appropriate account number segments in your chart of accounts.

All revenue coming into your organization and expenses going out need to be identified with an account code corresponding to the funding source, or expense (who), the revenue or expense’s functional area (what) and the type of revenue and expense (why) of the transaction.