I need to understand how to account for grant money I received for my business. I put the Vendor as the organization that gave me the grant, but what category do I use?

create a liability account for the EIDL, use that account as the source account for the deposit.

If at the end of the year it is in fact income tax free, then use a journal entry to move the full amount to an Other income account called tax free income.  debit liability and credit tax free income

Hi,

Thanks for your answer, but I do have a follow up question.

This grant money that I won't have to pay back. So can you explain a little more about why to put it in a liability account? I though liability accounts were for things I had to pay back. Or is this just a holding place until the end of the year?

Assuming I do put it in a Liability account. 

If at the end of the year I do have to pay taxes on the non governmental grant I got. Do I need to move that money into an income account that will be taxed. That I name "other taxable income" or something like that.

As far as I can tell QBO does not have a non-taxable other income account. I have set up a other income general ledger account but when I run the p&l it shows up as a taxable item but below ordinary income.

"Just move it..."

This reminds me of an Algebra teacher I had.

ME: "How did you get from this equation to that solution?" 

Professor who can no longer relate to the beginner: "Because, that's the answer. You just do it."

Me: "Ahh, gee wiz. Thanks for that. Just do it. Got it."

LOL

If you are sure you will not ever have to pay the grant back, you can record the deposit of grant funds directly into the other income account.  If there was a question on whether you would have to pay the grant back (PPP loans, for instance, for which you have to apply for forgiveness), you would want to record the original loan as a liability and then record the forgiveness as a journal entry to pay off the liability account with an other income account as suggested. 

Recording the initial deposit this way means that the amount you received, which you may or may not have to pay back, will show in your financials as a possible liability.  The notes in your financial statements could include specifics about that loan and the fact that it most likely will be forgiven, but until it definitely is, it needs to show as a liability.

I have the same question. The non taxable income is increasing my net profit, although it is under other income. It is also transferring over into my balance sheet under equity as net income for the year. How do I record it so it doesn't affect my equity.