CLASS or LOCATION for tracking Restricted Funds

I acknowledge that setting up and handling an account as a new user in QuickBooks Online (QBO) can be challenging, Julie. No worries, I'll share some steps on how you can track the donations you receive and manage them accordingly.

By analyzing your situation, the best way to track the donations you receive is by utilizing the Class tracking. This way, you can review and manage the restricted and unrestricted donations in QBO. Still, I'd recommend collaborating with your accountant for accurate guidance and help regarding your concerns.

The first thing that we need to do is turn on the Class tracking so you can use and utilize the said feature:

1. Go to the Gear icon and select Accounts and settings.
2. Choose Advanced, and on the Categories section, click the pencil icon.
3. Tick Track classes and then press Save.

Next, let's set up a class for both unrestricted and restricted funds:

1. Go back to the Gear icon and select All list.
2. Choose Classes and then click New.
3. Enter "Unrestricted Donations" in the Name field. You can use this class to track the unrestricted donations.
4. Once done, press Save.
5. Click New again to generate a class for the restricted donations.
6. Name this class "Restricted Donations". Use this class to track the restricted donations.
7. After that, click Save.

Once you receive donations and record them in QBO, you may select the classes you've created on the Class field. This field can also be used for your existing transactions. You may also maximize the Classes feature in QBO to generate other necessary classes for your donation tracking.

For a complete reference on handling your funds in QBO, kindly check this article: Fund Accounting for non-profits in QuickBooks Online.

Meanwhile, you may turn on the location tracking in QBO to set up and organize your data from different locations, regions, or departments.

Additionally, you may explore these articles that could help you manage and personalize your reports in QBO. This way, you can freely filter your data and check for your company's profitability.

• Customize reports in QuickBooks Online.
• Run reports in QuickBooks Online.

I'm always ready to provide additional help if you have more questions about handling your received donations in QuickBooks. Feel free to reply to this thread, and I'll assist you right away. Take care!

Thank you, Ivan - I appreciate your response.

I've read all the articles you referenced - the article about Fund Accounting is very basic and doesn't cover some of the very complicated issues. Frankly, I'm having trouble finding any resources on Non-Profit/Fund Accounting in QBO (which makes me wonder if it's a mistake). I'm not ready to abort yet, but I just need some deeper resources to get it set up correctly.  I'm transitioning from a disaster (not my disaster), but don't want to create a new disaster.

Any other references/help you could point me toward would be great.

I'll be more than happy to assist you with more references you can check, Julie.

I know finding more relevant references or help here in the QuickBooks Community is a little bit hard, as it has too many posts and articles that you can choose from.

Let me share these articles I found that can help you learn more about tracking your funds: 

• Track funds you receive from donors in QuickBooks Online
• How to create single or multiple transaction statements for donors
• Set up and record in-kind donations in QuickBooks Online

Let me know if you still need some articles to check. We'll be here to help you. Have a great day, and take care always.

Thank you, JoanaC -

I will have a look at those articles. I'm not as concerned with keeping track of our individual donor contributions in QBO, as we have a third party vendor we use for capturing our donations.

My primary concerns are:

• Proper Accounting of Restricted & Unrestricted Income/Expenditures
• Proper Accounting of Pass-Through Income/Expenses

One online "expert" has suggested that LOCATIONS can be used for Restricted/Unrestricted, which seems like a interesting idea on the surface. However, it appears that LOCATION is not available for journal entries. So, perhaps not a good idea.

Other ideas that I'm looking for help on:

• Using the Liability account for Pass-Thru accounts
• If I use CLASS for Restricted/Unrestricted, can I still use it for Programs (Departments)?

So, you can see that I'm looking for in-depth guidance.

Thanks, again for your response.

I appreciate you for returning to this thread, Julie.

Regarding your primary concerns, it's best to seek help from an accountant. If you don't have one yet, you can check this ProAdvisor link to get advice on how to properly handle this matter, so your report will reflect accurate data.

I'll add these blogs to help you with handling location/class part in QuickBooks Online:

• Using Classes and Locations in QuickBooks Online
• How do pass-through entities work?

I'll keep an eye out for your reply. And if you have any other QuickBooks-related concerns, feel free to include them in the comments. We're here to assist you 24/7. Have a great day!

Good morning,

I am considering switching to quick books online from another fund accounting system, but have read that QBO is not the best for fund accounting.  There are many advantages including cost and integrations, but like you, I need to be able to track Unrestricted vs. Restricted as well as allocate to programs (program, fundraising and management).  I wanted to see if you had any luck getting this to work as you seem to have similar concerns.  Appreciate any feedback you can provide.  

Hi, Cares -

I have not received the responses I'd hoped for. The QuickBooks team is very responsive, but has not answered the questions I've asked. I was also hoping some experienced CPA's or other non-profit accountants would chime in with some answers. I'm still holding out hope!

I've watched A LOT of YouTube videos by non-profit CPAs with lots of ideas, but some of them seem contradictory.

Stay tuned!

In an almost identical boat to you. Inherited a mess of designated funds in software from 2007 and am using classes to track different designated funds vs unrestricted operating funds. So far everything works well with recording sales (donations) for customer (donors). I can then enter expenses by designated fund or by unrestricted operating fund. The one thing I have not figured out and am desperate to figure out is the opening designated funds balances and how these should be entered so that I can run a "Statement of Activity by Class Report" that shows a continual balance for each designated fund.

I have used classes to track programs and locations to designate with and without restrictions. It works well enough for producing two column reports by class (program) and location (restricted balances) or for the organization overview with restricted balances. 
another approach is to use classes and restricted account lines, parking program restricted funds in the appropriate class, while moving unrestricted income into a general or admin class to represent without donor restrictions. 
It’s not elegant. Quickbooks isn’t really good software for nonprofits, but with focused reporting, you can pull it off. 

Good luck!

I'm also trying to set up QBO for a church. I'm playing with it over the next couple of months in hopes of starting fresh January 1, 2025. I think classes are going to work well for tracking restricted donations, but I have the same big question as you... How to set the opening balance for these????

Also, I'm considering using sub-accounts in our checking account for the restricted funds. If I understand QBO correctly, that will be another way to quickly see the balance of each of the restricted funds in relation to the overall checking account balance since all of our restricted funds are held in the same checking account as the general operating (undesignated) funds. Anyone have thoughts on using sub-accounts?

Actually....maybe I just answered my first question. Is sub-accounts the answer to setting the opening balance? Need someone with some experience to weigh in!

Thanks for chiming in this thread, shortbg. Let's dive into your questions together and get things sorted out.

Classes are a fantastic tool for tracking various segments of your organization, such as restricted donations. However, it's important to note that classes categorize transactions without directly impacting opening balances. For this reason, using sub-accounts under your checking account could be a better strategy for managing and tracking your restricted funds. I'll outline the steps below to create one for your convenience.

Here's how to create a sub-account to track restricted funds:

1. On the left navigation panel, click Transactions.
2. Go to the Chart of accounts tab.
3. Click New.
4. Name the account, and then fill out the form.
5. Tick the Make this a sub-account box.
6. Choose the appropriate parent account from the dropdown.
7. Add an opening balance for the sub-account by filling out the Opening balance and As of fields. 
8. Save the account.

Feel free to use this screenshot as a guide.

If you're looking for more ways to handle opening balances, including creating journal entries or adjusting through bank deposits, check out this helpful article: Enter and manage opening balances in QuickBooks Online. It’s packed with steps and detailed explanations to guide you through various methods. 

I'd also recommend checking in with an accountant to ensure your books and records are accurate, especially when dealing with opening balances and managing accounts. If you still need to find one, you may use our accountant tool to locate a nearby professional.

Additionally, consider bookmarking this guide on ensuring your QuickBooks accounts match your real-life ones for future use: Reconcile workflow.

If you have any more questions or need further assistance in managing your finances, please feel free to reach out. I'm here to help make your QBO setup as smooth and efficient as possible for your organization. Good luck with your new start in January 2025, shortbg!

@shortbg 

"How to set the opening balance for these????"

Restricted funds (RF) should be listed as an equity account on your balance sheet, not a sub-account of a bank account.  The proper entry is to offset the bank balance to a RF equity account, not opening balance equity.

"Also, I'm considering using sub-accounts in our checking account for the restricted funds.  If I understand QBO correctly, that will be another way to quickly see the balance of each of the restricted funds in relation to the overall checking account balance since all of our restricted funds are held in the same checking account as the general operating (undesignated) funds."

That's the reason you have a RF equity account.  I mean, you could offset the RF equity account to a bank sub-account with the same balance but why?  It's not giving you any more information.  And, that could get you in trouble.  What if you decide to open an investment account or even a savings account and pull out some funds from your only checking account to open it?  Are those restricted funds or unrestricted funds?  You see the issue.  The bottom line is that RF should be assigned to a RF equity account and it doesn't matter what bank/investment account(s) they go into.  The proper balance will always be shown in your RF equity account balance.    

Did you ever figure out a solution? I'm having the same issue.