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Fund Accounting for non-profits

Learn about Fund Accounting for non-profits and how to track funds in QuickBooks Online.

Fund Accounting is an accounting method used by non-profits in which funds are allocated to expenses before the money is actually spent. When the fund is empty, the accounting system doesn't allow any more spending against the fund.

When using Fund Accounting in QuickBooks Online, you can use Class tracking and banking sub-accounts to track individual funds.

In this article, we'll explain how Fund Accounting works with non-profits and the steps necessary to take to track the funds in QuickBooks Online.

Fund Accounting and non-profits

Any tax-exempt organization that meets Section 501 of the United States Internal Revenue Code is a non-profit Fund Accounting operation. Non-profits are required to divide financial information among a variety of categories, or funds, and use standardized non-profit reports to report on those funds.

These funds have restrictions on the use of resources. The funds are used to measure the revenues and expenditures arising from particular activities. Each organization is responsible for the proper collection, disbursement and control of all money relative to the funds the organization receives.

Fund Accounting and municipalities

Municipalities are regulated by Governmental Accounting Standards Board (GASB) 34 regulations, which are new to many cities — depending on size — in the last few years.

These new regulations require more stringent inventory of assets. If you're a municipality consider using the desktop version of QuickBooks Premier Non-Profit to ensure compliance with those regulations. QuickBooks Online is better-suited for non-profits that don't have these more stringent inventory requirements.

Track funds: An Overview

To track funds you'll need to complete each of the following steps.

  1. Turn on Class tracking.
  2. Assign a Class to each fund.
  3. Optionally set up a banking sub-account for each fund.
  4. Run a Profit and Loss by Class report to review income and expenses.

The following sections guide you through the specific steps for each of these.

Step 1: Turn on Class tracking

The first step is to turn on the Class tracking feature.

  1. Select Settings ⚙️.
  2. Select Account and Settings.
  3. Select Advanced.
  4. In the Categories section, select the pencil (edit) icon to open the fields for editing.
  5. Select the Track classes checkbox.
  6. Select Save.
  7. Select Done.

Once that's turned on, you'll see the Class field on relevant forms that lets you identify the class associated with different transactions.

Step 2: Set up a Class for each fund

You can set up a separate Class for each fund to track separately.

  1. Select Settings ⚙️.
  2. Under Lists, choose All Lists.
  3. On the Lists screen, select Classes.
  4. Select Next.
  5. In the Class dialog, enter the name of a fund in the Name field.
  6. Select Save.

Repeat these steps for each of the funds you need to track.

When you enter fund transactions, you can now select the appropriate fund in the Class field for the income or expense line affected.

Step 3: Track multiple funds with bank sub-accounts

If you have multiple funds, you can have the total for all the funds recorded to a single bank account on your Chart of Accounts, but have multiple sub-accounts to track individual funds.

You can set up a different sub-account for each fund to track. Every transaction you link to one of the sub-accounts you create is reflected in the parent account.

To set up sub-accounts:

  1. Select Settings ⚙️.
  2. Select Chart of Accounts.
  3. Select New.
  4. In the Account dialog, select Bank from the Account type drop-down list.
  5. Select Checking from the Detail Type drop-down list.
  6. Enter the Name of the fund.
  7. Select the Is sub-account checkbox.
  8. Select the main bank account the funds will be controlled through from the Enter parent account drop-down list.
  9. Select Save and Close.

When you record deposits and withdrawals from these funds, be sure to identify the specific sub-account as the bank account to be affected.

Step 4: Run a Profit and Loss report by class

Now that everything is set up, you can run Profit and Loss reports by Class to review fund income and expenses.

  1. Select Reports.
  2. Search for and select Profit and Loss by Class. The report reflects the current fiscal year's numbers.
  3. Select All Dates from the Report period drop-down list to review the total income or expense for the entire life of the fund.
  4. Select Run Report.

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