Before You Start

This guide assumes you have a QuickBooks Online Plus or Advanced subscription and a basic understanding of non-profit financial terminology.

Overview

50 min
Setup Time
Advanced
Difficulty
Quarterly
Maintenance

What You’ll Learn

  • How to structure your QBO for effective fund accounting
  • Setting up Classes and Tags for grant and program tracking
  • Recording restricted and unrestricted contributions
  • Generating essential non-profit financial reports (e.g., Statement of Activities)

1. Preparation Steps

Ensure these foundational elements are in place in QuickBooks Online:

Required QBO Setup

  • Enable “Classes” and “Locations” (Account and Settings > Advanced)
  • Create “Projects” for each major grant (optional, but recommended)
  • Establish distinct Income and Expense accounts for program activities
  • Set up a “Net Assets (Unrestricted)” and “Net Assets (Restricted)” Equity accounts

Key Accounts to Review

  • Donor Contributions (Income)
  • Program Service Revenue (Income)
  • Management & General Expenses (Expense)
  • Fundraising Expenses (Expense)
  • Grants Payable (Liability, if applicable)

2. Choosing Your Accounting Structure

You have a few key approaches for robust fund accounting in QBO.

Method A: Classes for Fund Tracking

Leverage QBO’s built-in “Classes” feature for primary fund separation.

Pros:
  • Clear separation of restricted/unrestricted funds.
  • Reports by Class are powerful for financial statements.
  • Easy to assign to transactions.
Cons:
  • Limited to one class per line item.
  • Can become unwieldy with many grants.
  • Doesn’t track grant budgets natively.

Method B: Projects (Plus Tags) for Grant Management

Use “Projects” for major grants and “Tags” for more detailed tracking.

Expert Tip: For comprehensive grant tracking, we strongly recommend combining Classes for broad fund types (e.g., Unrestricted, Temporarily Restricted, Permanently Restricted) with Projects for individual grants. Use Tags for additional granular detail like specific programs or donor types within a grant.

3. Step-by-Step: Implementing Fund Accounting

Here is a high-level workflow for setting up your non-profit accounts in QBO.

Here is a sample JSON structure representing a grant contribution to illustrate data flow.

{
  "transaction_id": "GC-2025-001",
  "date": "2025-03-15",
  "amount": 10000.00,
  "donor_name": "Benevolent Foundation",
  "fund_type": "Temporarily Restricted",
  "restriction_details": "For Youth Education Program 2025",
  "class_id": "Temporarily Restricted Funds",
  "project_id": "YouthEdGrant_2025"
}

4. Setting Up QuickBooks for Funds

  1. 1

    Define Your Classes

    Go to Settings > All Lists > Classes. Create classes for your main fund types (e.g., Unrestricted, Temporarily Restricted, Permanently Restricted).

  2. 2

    Create Projects for Grants

    For each major grant, create a “Project” under the Projects menu. This allows for detailed revenue and expense tracking per grant.

  3. 3

    Record Transactions with Classes/Projects

    When entering income or expenses, assign the appropriate Class (fund type) and Project (specific grant) to ensure accurate allocation.

Common Error: Incorrect Fund Release

When restricted funds are spent according to their purpose, remember to process a “release of restriction” journal entry to move the funds from ‘Temporarily Restricted’ to ‘Unrestricted’ net assets in QBO.

5. Reporting and Reconciliation

Reporting Checklist

  • Run a “Profit and Loss by Class” report
  • Review “Statement of Activities” equivalent via custom reports
  • Verify grant spending against budget reports (using Projects)
  • Reconcile restricted fund balances monthly

Need Help?

Get Support

Implementing detailed fund accounting can be complex. Our non-profit specialists are here to help.

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