(church) fund accounting

I'll share information about Fund Accounting for non-profits and how to track funds in QuickBooks Online.

Fund accounting is essential for non-profit organizations to track and manage their financial resources in a way that ensures transparency and compliance with donor restrictions. QuickBooks Online can be used for fund accounting by setting up classes or locations to segregate funds and transactions. 

To be able to see the Class field on relevant forms that let you identify the class associated with different transactions, please follow these steps in turning on Class tracking:

1. Go to Settings ⚙, then select Account and Settings.
2. Choose Advanced.
3. In the Categories section, click edit ✎.
4. Turn on Track classes.
5. Select Save.
6. Click Done.

Then you can now set up a class for each fund. Here's how:

1. Go to Settings ⚙, then select All lists.
2. Select Classes.
3. Pick New, then enter the name of a fund in the Name field.
4. Click Save.

For detailed information, refer to this article: Fund Accounting for non-profits in QuickBooks Online.

I also suggest reviewing the plans and pricing on which product will work best for your company. Check out this link: https://quickbooks.intuit.com/pricing/. 

You can visit this article you can use in the future: Track funds you receive from donors in QuickBooks Online.

Feel free to post here again if you have further QuickBooks-related concerns. We are available 24/7 to lend a hand with each of your queries. Stay safe!

Thank you for the information about setting up QBO to handle fund accounting. What I am looking for is feedback from users about how it is working for them.

Works well for Profit and Loss purposes but as far as Balance Sheet is concerned, useless. Only way of tracking the balance of a fund is by running an All Dates P&L and that's assuming you had no opening balances.

Thanks for your response (and apologies for taking so long to get back to you). That is helpful. I will continue to experiment.

I'm happy that my colleague was able to provide the solution you require, @laurakan.  

We are still here if you need more guide in the future. Have a great day!

I work for four churches that use QBO and fund accounting. Two of them set up the funds as liability accounts, and then all of the revenue and expenses are on the liability accounts. The fund balances then show on the balance sheet and we run the register on the liability account to view activity detail. The activity does not show on the statement of activity for the operating fund, which is how we want it.

The third one uses the same method as the other two except that one of the funds is for a large ministry program with its own budget. In this case, the liability account basically serves as a reserve fund for this ministry. We also have a class for the ministry so that we can run typical activity and budget reports on it. 

At the fourth church, these funds are set up as equity accounts and there is also a class for each fund. It's a huge complex mess. There are 20 funds and thus 20 classes. We don't run the activity report by class because it would just be too much detail and the board wouldn't be able to manage it. The bad thing about this is that there is no way for them to easily see whether specific expenses were on the operating account or not. If the priest buys expensive new vestments with money from the altar guild fund, this shows on the statement of activity, which is not what we want. At the end of the year, the statement of activity by class gets run and then journal entries are made to adjust the fund balances. I think this is not a good way to do it. 

All of these methods were developed by CPAs.

That's interesting to set up the funds as liability accounts. What is the rationale behind that, and how do you set up the income and expenses? Are they entered as asset and liability, respectively? I can't quite wrap my head around how to do this. Thanks!

The person who set it up just felt that liability accounts were the most suitable option for funds with restricted uses. The activity is tracked by using the liability as the account that is debited and credited for expenses and income (instead of expense and income accounts). We use the register as a report of the activity.

Only thing with that approach is that some of the income and expenses may well have to be shown as such in the accounts. I'm writing from the UK but it's probably not too different where you are. I know it as "revenue recognition", the question whether something has to be shown as income for the church or organisation or not.

That is interesting. I still can't quite picture how it would all play out, and that and comments from others make me think QBO would not be the solution for this client. That's a bummer, because their current software (ChurchWindows) has horrible custom reporting, and TechSoup gives an amazing discount on QBO to NPO's. I could save my client a ton of money, but not at the cost of my sanity.

Thanks for your feedback. It's really useful and saved me from losing years off my life trying to make QBO work for them!

I used Church Windows for years. Fund accounting was the one thing it was good for. Although QBO is not ideal (and really I'm ready to get rid of it for other reasons), I've found it easier than Church Windows. 

We just transitioned over to QB online and I am very disappointed that you can no longer track the balance sheet accounts by class without doing extra work.  You enter a deposit and it goes to "unspecified" for the bank account gl line then it appears that I have to post a journal entry to move the funds to the correct class.  This was not a problem in the Desktop version. Don't know why they took away this feature when the online version was developed.  When our data was migrated over it really messed up our Statement of Financial Position by class .  All transactions that affected balance sheet accounts, such as deposits, checks written, and transfers were put into the "unspecified column"  (the detail related to those transaction went to the correct class so the Statement of Activity by class was correct ) They sure went backwards on this when it comes to accounting for non-profit organizations.  We may have to reconsider using the online version since it is not user friendly when using fund accounting. 

Thank you for getting in touch with the Community, Omahmf.

When using Fund Accounting in QuickBooks Online (QBO), you have the option to utilize Class tracking and banking sub-accounts to monitor individual funds. I'd gladly walk you through the steps in detail.

To track balance sheet accounts by class and manage fund accounting in QBO, please follow these steps to turn on the Class Tracking feature:

1. Go to Settings, and select Account and Settings.
2. Choose the Advanced tab.
3. In the Categories section, click Edit ✎.
4. Turn on Track classes.
5. Click Save, then Done.

After completing the initial step, move on to steps 2 and 3. You can find the instructions in this article: Fund Accounting for non-profits in QuickBooks Online.

Furthermore, before generating your balance sheet report by class or location, it's important to understand the source of the transaction data in QuickBooks. This understanding will help you verify the accuracy of your report. To filter a balance sheet by location, follow these steps:

1. Go to Reports and open the Balance Sheet report.
2. From the Display columns by dropdown, select Locations.
3. Click Run report.

For more detailed information on the process, I recommend reading this article: Run a balance sheet by class or location in QuickBooks Online.

You may also find this article helpful for additional information in the future on customizing financial reports based on your business needs in QBO: Run Reports in QuickBooks Online.

Please tag my name in your reply if you have other questions about fund accounting-related concerns in QBO. I'm more than willing to assist you further. Have a pleasant day!

But why do you advice people to use Classes when the article states that only Locations will work on both the balance sheet and the profit and loss? What do classes do which locations don't?

Thanks for joining the thread, @oliverm!

In QuickBooks Online (QBO), Classes and Locations help categorize transactions but serve different purposes.

Locations are ideal for tracking performance across various business sites or branches. You can filter the Balance Sheet and Profit & Loss statements by location, which simplifies the assessment of financial performance at each site. This feature is useful for businesses with multiple storefronts that want to evaluate individual results.

Classes, on the other hand, are more versatile. They can categorize transactions by department, product line, project, etc. Unlike locations, classes apply only to the Profit & Loss report, not the Balance Sheet. The advice to consider using classes is based on their ability to provide a more granular view of profitability and performance, complementing the broader look offered by locations. This flexibility is beneficial for tracking income and expenses related to different operational areas.

Organizations can use them together for a comprehensive view of finances, facilitating analysis by geography while also evaluating departmental performance. Your choice should depend on your specific tracking and reporting needs.

For additional information, refer to this article: Run a balance sheet by class or location in QuickBooks Online.

To learn more about generating reports by class, check out this informative guide: Run reports by class in QuickBooks Online.

If you have any other concerns or questions, feel free to post them here in the Community. We're always pleased and available to assist. Take care and have a great day!