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Guide

QuickBooks Online speaks non-profit once you tell it to. The restricted funds still have to be designed.

Set a QuickBooks Online company up as a non-profit and the reports change their names: a Statement of Activity instead of a profit and loss, a Statement of Financial Position instead of a balance sheet, donors instead of customers. That is the easy part. Showing which restricted dollars paid for which program depends on how classes, locations and projects are used, and that choice is best made before there is a year of history to recode.

Book a free 30-minute call The tracking design

The starting point

Non-Profit Setup

When the company’s industry or tax form is set to non-profit, QuickBooks Online relabels its reports and some lists for a not-for-profit audience.

Business termNon-profit term
Profit and loss Statement of Activity
Balance sheet Statement of Financial Position
Customers Donors, or another label you choose in settings

The relabeling makes reports readable for a board, but it does not change the accounting underneath. Since ASU 2016-14, a not-for-profit reports two classes of net assets, without donor restrictions and with donor restrictions, and analyzes expenses by both nature and function. QuickBooks will not do either automatically. Both come from the chart of accounts and from how transactions are tagged.

The tools

Classes, Locations and Projects

QuickBooks Online gives a non-profit three ways to tag a transaction. They behave differently, and the differences decide what each one is good for.

ToolHow it appliesBest used for
Classes Can be set per line, so one bill can be split across several Function: each program, management and general, and fundraising
Locations One per transaction A site, chapter or department, when the organization has more than one
Projects Attached to a donor or grantor, with income and costs tracked against it Individual restricted grants, with their own profitability and budget

On QuickBooks Online Plus, classes and locations share a combined limit of 40. A non-profit with many programs, sites and grants can reach it quickly, which is one more reason not to use classes for grants. QuickBooks Online Advanced removes that limit.

The build

The Tracking Design

Every restricted dollar has to answer two questions: whose money was it, and what was it spent on. In QuickBooks Online, the clean answer is projects for the first and classes for the second.

QuestionToolSet up as
Whose money was it? Projects One project per restricted grant, under the funder as the donor
What was it spent on? Classes Each program by name, then management and general, and fundraising

Unrestricted money needs no project. Restricted receipts and every cost charged to a grant are attached to that grant’s project, and every expense, restricted or not, carries a class. The Statement of Activity by class then gives the functional expense analysis, and project reports give each grant’s position.

Classes set per line matter here more than anywhere. A payroll entry or a rent bill that serves three programs is split across three classes on the same transaction, rather than posted to one and moved later.

Budget per grant

QuickBooks Online budgets can be split by class or by customer. Budgeting by the funder, or by class for program budgets, gives budget versus actual from the file rather than from a spreadsheet rebuilt before each funder report.

Equity, renamed

Net Assets in QuickBooks

QuickBooks Online closes each year’s surplus or deficit into a single retained earnings account. A non-profit needs that balance split between its two net asset classes.

  • Rename retained earnings. Call it net assets without donor restrictions, since that is where the unrestricted result of each year belongs.
  • Add an equity account for net assets with donor restrictions. It holds restricted money received and not yet spent on its purpose.
  • Keep restricted revenue in its own accounts. Restricted contributions and grants posted to separate income accounts make the year-end split a reading, not a reconstruction.
  • Post a year-end reclassification. Move the restricted portion of the year’s result from the renamed retained earnings account to the restricted net assets account, so the Statement of Financial Position shows both classes correctly.

The journal most files miss

Releasing a Restriction

When restricted money is spent on its purpose, or its time restriction passes, it moves from net assets with donor restrictions to net assets without. That release is a journal entry, and it is the one most non-profit files never post.

Without it, restricted net assets only grow, and the Statement of Financial Position shows money held for purposes it has already been spent on. With every grant cost attached to its project, the month’s release amount for each grant is the qualifying spend on that project, read straight from the project report.

Post the release monthly, through a pair of net assets released from restriction accounts, and the restricted balance always matches what is genuinely still owed to its purpose. A recurring journal template in QuickBooks keeps the accounts consistent; only the amounts change.

Money in

Donors and Acknowledgments

  • Record every donor as a donor. Gifts recorded as sales receipts or payments against the donor build a giving history in QuickBooks, which makes year-end statements a report rather than a search.
  • Acknowledge gifts of $250 or more in writing. The IRS requires a donor to have a written acknowledgment for any single contribution of $250 or more to claim a deduction. It must state the amount, and whether any goods or services were given in return.
  • Separate contributions from exchanges. A grant where the funder receives value back is earned revenue, not a contribution, and a conditional grant is not revenue until its condition is met.
  • Keep donor management software in sync. If donations come in through a fundraising platform, sync summarized deposits to QuickBooks with the fees recorded as an expense, so deposits match the bank.

The failure modes

Where Coding Goes Wrong

  • Grants set up as classes. The 40 class and location limit on Plus arrives, and the functional view gets mixed up with the fund view.
  • Classes applied to some lines and not others. The functional expense analysis has a large unclassified line nobody can explain.
  • No release journals. Restricted net assets grow forever.
  • A single retained earnings balance. The Statement of Financial Position cannot show the two net asset classes.
  • Platform deposits recorded net of fees. Revenue is understated and fundraising costs disappear.
  • A board designation recorded as a donor restriction. It stays without donor restrictions, because the board can reverse its own decision.
  • Shared costs left in one class. Management and general looks far larger than it is.

Questions

Commonly Asked

Can QuickBooks Online be used by a non-profit?
Yes. Set the company up as a non-profit and QuickBooks Online relabels its reports: the profit and loss becomes the Statement of Activity, the balance sheet becomes the Statement of Financial Position, and customers can be labeled donors. Net asset classes and functional expenses still come from how the chart of accounts and tagging are set up.
How do I track restricted grants in QuickBooks Online?
Use projects for grants and classes for function. Create one project per restricted grant under the funder, and attach the grant’s receipts and every cost charged to it. Set classes for each program plus management and general and fundraising, and apply a class to every expense line. Project reports show each grant’s position, and the Statement of Activity by class gives the functional expense analysis.
Should I use classes or locations for programs?
Classes. They can be applied per line, so a shared cost can be split across programs on one transaction. Locations apply one per transaction and suit sites, chapters or departments. On QuickBooks Online Plus, classes and locations share a combined limit of 40; Advanced removes it.
How do I show net assets with and without donor restrictions in QuickBooks?
QuickBooks Online closes each year into one retained earnings account. Rename it net assets without donor restrictions, add an equity account for net assets with donor restrictions, keep restricted revenue in separate income accounts, and post release journals monthly and a year-end reclassification so both classes are correct on the Statement of Financial Position.
When does a donor need a written acknowledgment?
For any single contribution of $250 or more, the IRS requires the donor to have a contemporaneous written acknowledgment to claim a deduction. It must state the amount of cash or describe non-cash property, and say whether any goods or services were provided in return, with a good-faith estimate of their value if so.
Is QuickBooks Online or Xero better for a non-profit?
Both work. Xero has two tracking categories that map neatly to fund and function. QuickBooks Online has classes, locations and projects, with non-profit report labels built in. The right choice usually depends on the software your team, your auditor and your donor platform already use.
QuickBooks ProAdvisor, Elite A team certified in QuickBooks Online, Intuit Enterprise Suite and Workforce.
Xero Gold Partner Certified advisors, with Xero as the platform our depth genuinely sits in.
13+ years in practice Across accounting outsourcing, ERP and accounting software work.

Next

Where to Go Next

Guide Restricted Funds in Xero The same restricted fund design, on Xero’s two tracking categories. Who we serve Non-profits How the rest of a non-profit’s books fit around restricted funds. QuickBooks QuickBooks Bookkeeping How we run QuickBooks Online and Intuit Enterprise Suite files. QuickBooks service Monthly Bookkeeping The monthly cycle, including release and allocation journals. QuickBooks service Catch-Up & Clean-Up Recoding a year of grants into projects and classes. Guide Xero vs QuickBooks How the two platforms compare for US organizations.

Can your QuickBooks file show where each grant went?

If a funder report means rebuilding a spreadsheet, the tagging is not happening at entry. Tell us how many restricted grants you manage.

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