I drafted the following memo to the nonprofits' management team based on your note. I tweaked the data entry/coding process: using QB's "Project" feature, rather than its "Product/Service" feature to capture our Service data, since it seems like QB's Project feature is intended to capture profitability, and I've suggested using QB's "Class" and "Location" designations to capture our Source and State/Region profitability, since they can be used together, and are designed to capture both revenues and expenses.
Management,
The accounting software features mentioned herein are available on “QuickBooks Online Plus”, “QuickBooks Advanced”, and “QuickBooks Accountant”.
The purpose of this memo is to describe logistically how QB may be used to track and report four levels of revenue, expense and profitability:
CATEGORY – this is a GAAP requirement that nonprofit revenue be tracked and reported based on sourcing restrictions; grant revenue typically comes with expense restrictions; operating revenue typically doesn't. In QuickBooks (“QB”), the distinction between restricted and unrestricted revenues will be made directly in the CHART OF ACCOUNTS; specifically, all revenue accounts will be designated as either “restricted” or “unrestricted” [note: we don’t anticipate receipt of any “permanently restricted” revenues].
SOURCE – this is a necessary designation to track the use of restricted revenues for compliance purposes. QB will track revenue and expenses by specific source (e.g., by individual grant, and/or specific source of other income) utilizing QB’s CLASS function, designed to monitor income and expenses and run reports for different lines of business.
REGION – this designation will be used to monitor and report profitability by regional training center (“RTC”); specifically, revenues and expenses will be coded using QB’s LOCATION function, which is designed to monitor income and expenses and run reports for different business locations.
Note: the above designations are captured at the time revenue and expense transactions are initially entered in QB. Once the data has been entered, the following sub-classification designation requires a secondary coding process (i.e., the following reports should be reconciled to the trial balance to verify accuracy).
SERIES - this designation will be used to monitor and report profitability by program Series (e.g., Pre-K year 1, K year 2) using QB’s PROJECT function. This requires creating a “Customer” and corresponding “Project” for each training program or Series - and then assigning revenues and expenses that have previously been entered in the accounting system to the Project.
This memo is based on information received from QB dtd 4/9/19.
Allan Dowds
