Services
Monthly bookkeeping run entirely in Xero — closed, reviewed and proven every period by the team that does the work.
Bookkeeping packages
The framework
The Two Net Asset Classes
Since ASU 2016-14, a not-for-profit reports two classes of net assets, not three.
| Class | What it holds | Replaced |
|---|---|---|
| Without donor restrictions | Resources the organisation can use for any purpose, including amounts the board has designated for something | Unrestricted |
| With donor restrictions | Resources a donor or grantor limited by purpose, by time, or in perpetuity | Temporarily and permanently restricted |
The same standard requires expenses to be analysed by both their nature, meaning salaries, rent and supplies, and their function, meaning program services, management and general, and fundraising.
Two details are easy to get wrong. A board designation is not a donor restriction: money the board sets aside stays without donor restrictions, because the board can undo its own decision. And a restriction belongs to the donor’s stipulation, not to your intention. Money you plan to spend on a program is unrestricted until someone outside the organisation says it must be.
The build
The Two-Category Design
Xero provides two tracking categories per organisation. A restricted fund needs exactly two dimensions, which makes them a direct fit.
| Category | Answers | Options |
|---|---|---|
| Fund | Whose money was it? | General operating, then one option per restricted grant or gift |
| Function | What was it spent on? | Each program by name, then management and general, and fundraising |
Putting each program as its own option inside Function does two jobs at once. Rolled up, it gives the three functional classes the financial statements require. Broken out, it gives program-level reporting for funders who want to see what their program cost.
With both categories applied to every transaction, Xero’s own reports produce the views a non-profit is asked for: a profit and loss by fund to show each grant’s position, by function for the functional expense analysis, and filtered by both together for a single grant’s spend on a single program.
Budget per grant
Xero’s budget manager holds a budget against a tracking option, so each grant can carry its own approved budget. Budget versus actual by grant then comes from the file rather than from a spreadsheet rebuilt before every funder report.
Money in
Coding the Money In
Two questions decide how a receipt is recorded, and both are answered by reading the agreement rather than by looking at the bank line.
Is it a contribution or an exchange?
A contribution is given without the funder receiving equal value back. An exchange is a payment for something the funder receives: a contract to deliver a service to them, or a fee. Contributions are recorded as contribution revenue in the appropriate net asset class. Exchanges are earned revenue, recognised as the work is performed, the same way a business would.
Is it conditional?
A contribution is conditional when it has both a barrier the organisation must overcome and a right for the funder to take the money back or not pay it. A matching requirement, a milestone, or a reimbursement arrangement that only pays against allowable costs incurred are the common forms. A conditional contribution is not recorded as revenue until the condition is met. Cash received before then sits as a refundable advance, a liability.
Once both questions are answered, code the receipt to the right revenue account, the right net asset class, and the Fund option for that grant. Doing it at receipt matters, because the funder’s terms are in front of you then and are a document search later.
Money out
Coding the Money Out
Every expense carries three codes: the account for its nature, the Fund for whose money paid it, and the Function for what it was for.
The account is the natural classification: salaries, rent, supplies. The Fund option identifies the restricted grant it is charged against, or general operating if none. The Function option places it in a program, management and general, or fundraising.
- Set contact defaults for recurring suppliers. A supplier who only ever serves one program can carry that Function by default, and every bill arrives already coded.
- Build bank rules that apply tracking. A rule that codes the account can also apply both tracking categories, which removes the coding decision permanently for anything predictable.
- Code to a grant only what the grant allows. Charging an unallowable cost to a restricted fund is a finding at audit. If you are unsure whether a cost is allowable, code it to general operating and move it once confirmed.
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 reclassification is a journal, and it is the entry most non-profit files never post.
The expense itself always appears in net assets without donor restrictions. The release is what funds it: a reclassification out of the restricted class equal to the qualifying spend, so both classes tell the truth at the same time.
Without the release, restricted net assets only ever grow. The statement of financial position shows money held for purposes it has already been spent on, and the unrestricted class looks as if it is funding the programs itself. A funder reading that picture sees an organisation sitting on restricted money it has not used.
Because every restricted expense already carries its Fund option, the release amount for the month is the spend on each restricted fund, read straight from the profit and loss by Fund. Post the release monthly and the restricted balance always equals what is genuinely still owed to its purpose.
Allocation
Shared Costs
Rent, utilities, insurance and staff who work across programs all benefit more than one function. The functional expense analysis requires them to be allocated on a reasonable, documented basis.
- Choose a basis per cost and write it down. Square footage for occupancy, time records for salaries, headcount for shared services. The basis is what an auditor tests, so it has to exist on paper before year end.
- Post the allocation as a repeating journal. A monthly journal moving the shared cost from a holding function to each program, management and general, and fundraising, at the documented percentages, runs itself. A dynamic label keeps the narration current each month.
- Review the percentages annually. A basis set when the organisation had two programs is wrong once it has five.
Salaries are usually the largest shared cost and the one that needs the strongest evidence. Time records or periodic time studies are what support a split between programs, and between program work and administration.
Federal money
Federal Awards
Federal grants add the Uniform Guidance, 2 CFR 200, on top of the accounting standards. Two figures changed in the 2024 revision.
| Rule | Now | Was |
|---|---|---|
| Single audit threshold | $1,000,000 in federal expenditures in a fiscal year | $750,000 |
| De minimis indirect cost rate | Up to 15% of modified total direct costs | 10% |
Both apply to fiscal years beginning on or after 1 October 2024. An organisation without a negotiated indirect rate can elect the de minimis rate without documentation to justify it. OMB published a further proposed rewrite of 2 CFR 200 in May 2026, and it does not reverse either figure.
Organisations spending between $750,000 and $1,000,000 in federal funds have moved out of single audit territory. Check whether an audit is still budgeted that is no longer required.
The coding design above does the heavy lifting for federal compliance. Each award as its own Fund option, with every direct cost tagged to it, produces the expenditure figures the Schedule of Expenditures of Federal Awards needs, and keeps indirect costs separable from direct ones.
The failure modes
Where Coding Goes Wrong
- No release journals. Restricted net assets grow forever and the statement of financial position overstates what is still held for a purpose.
- Tracking applied to some transactions and not others. A Fund report is only as complete as the least-disciplined coder. Bank rules and contact defaults close most of the gap.
- A board designation recorded as a donor restriction. It stays without donor restrictions, however firmly the board means it.
- Conditional grants recorded as revenue on receipt. Money that could still be returned is overstated as income.
- Shared costs sitting unallocated. The functional expense analysis cannot be produced, and management and general looks far larger than it is.
- Unallowable costs charged to a grant. Found at audit, and repaid.
- A new option per year for the same grant. Multi-year awards belong in one Fund option across years, so the life-of-grant position can be read without adding reports together.
Questions
Commonly Asked
How do I track restricted grants in Xero?
Use Xero's two tracking categories for the two questions every restricted dollar answers. Make one category Fund, with general operating plus one option per restricted grant, and the other Function, with each program by name plus management and general and fundraising. Apply both to every transaction. Xero's reports then show each grant's position by Fund, the functional expense analysis by Function, and a single grant's spend on a single program by filtering on both.
What are the net asset classes for a non-profit?
Since ASU 2016-14, two: net assets without donor restrictions, which replaced unrestricted, and net assets with donor restrictions, which combined the former temporarily and permanently restricted classes. The same standard requires expenses to be analysed by both nature and function. A board designation stays without donor restrictions, because the board can reverse its own decision.
What is a release from restriction?
A reclassification from net assets with donor restrictions to net assets without, made when restricted money is spent on its purpose or its time restriction passes. The expense sits in the unrestricted class; the release funds it. Without release journals, restricted net assets only grow and the statement of financial position shows money held for purposes it has already been spent on. With every restricted expense carrying its Fund tracking option, the monthly release amount can be read directly from the profit and loss by Fund.
When is a grant recorded as revenue?
It depends on whether it is a contribution or an exchange, and whether it is conditional. An exchange, where the funder receives value back, is earned revenue recognised as the work is performed. A contribution is recorded as contribution revenue in the appropriate net asset class. A conditional contribution, with both a barrier to overcome and a right for the funder to reclaim or withhold, is not revenue until the condition is met; cash received before then is a refundable advance.
What is the single audit threshold and de minimis indirect rate now?
The 2024 revision to the Uniform Guidance raised the single audit threshold from $750,000 to $1,000,000 in federal expenditures in a fiscal year, and the de minimis indirect cost rate from 10 percent to 15 percent of modified total direct costs. Both apply to fiscal years beginning on or after 1 October 2024. OMB's May 2026 proposed rewrite of 2 CFR 200 does not reverse either.
How should shared costs be allocated?
On a reasonable, documented basis chosen per cost: square footage for occupancy, time records for salaries, headcount for shared services. Post the allocation monthly as a repeating journal that moves the cost from a holding function to each program, management and general, and fundraising at the documented percentages, and review the percentages annually. Salaries need the strongest evidence, usually time records or periodic time studies.