Quickbooks for Nonprofits does not follow nonprofit fund accounting guidelines, which can pose compliance risks for nonprofits. Not-for-Profit Organizations must follow strict accounting guidelines. There is no one-size fits all when it comes to nonprofit fund accounting software.
Nonprofit Accounting Guidelines
There are vast differences between nonprofit accounting and for-profit accounting. Unlike for-profit businesses, it must have management objectives and generate unique reports both for internal and external use. Most importantly, it must demonstrate accountability to funding sources.
Trying to shoe-horn the functionality of an off-the-self commercial accounting package, such as QuickBooks for Nonprofits or Peachtree, can jeopardize the fiscal well-being of your nonprofit organization.
Why Is Fund Accounting Unique to Nonprofits?
Fund Accounting is unique to not-for-profit organizations. As a consequence, fund accounting more than any other single concept of not-for-profit accounting, is the reason why not-for-profit organizations need proper fund accounting software tools for proper accountability and stewardship of funds.
The separation of accounting records by departments, branches and product lines is sometimes done in for-profit business accounting, but this is not the same as the separation that nonprofits need for fund accounting. All software packages designed to be used in for-profit businesses do not have fund accounting capabilities.
In fund accounting, amounts are segregated into categories according to restrictions placed by funding sources and designations placed by the organization’s governing board on their use. All unrestricted revenue are in one fund, all temporarily restricted revenue in another, all permanently restricted in a third, and so forth. Typically in reporting, an organization using fund accounting will present separate financial statements for each fund.
Nonprofits Must Demonstrate Compliance
Fund accounting is widely used by not-for-profit organizations because it provides the ability in ensure compliance with legal restrictions and to report on the organization’s stewardship of amounts entrusted by funding sources.
While this concept of separate funds in itself is not particularly difficult, it does create problems when trying to apply these principals with accounting software that is not designed to separate activity by funds.
The concept of fund accounting will continue to be appropriate for many organizations for keeping their books and for internal reporting to management, funding sources and the board. In addition the fund accounting financial records will be the basis for preparation of the financial statements used for reporting to the public.
This distinction between internal accounting and external financial reporting is important to understand. Accounting standards issued by the accounting profession deal only with external financial reporting, not how the internal books are kept. Organizations are free to use any method of record keeping they wish, as long as the final result – the financial statements seen by the public – are in the proper form.
Nonprofit Accounting Course: Learn essential skills to strengthen accountability and avoid costly mistakes. Get in-depth training on fund accounting, budgets, financials and more.
QuickBooks for Nonprofits Limitations
Intuit recommends using Classes in QuickBooks for Nonprofits to generate a Balance Sheet by fund, but there are inherent flaws in the design of QuickBooks that limit its capabilities in this area. However, the Balance Sheet by Class report is only available in QuickBooks Premier and Enterprise Solutions.
Here is information taken directly from the Intuit Support Site:
Important: The Balance Sheet by Class report is an advanced report that differs from other QuickBooks reports. Specifically, QuickBooks calculates the class allocations for the report each time you run the report. Because of this, you may experience some unexpected results. Understanding and fixing these results requires a strong background in accounting and a good working knowledge of QuickBooks. Only use this report if you need a balance sheet broken down by class.
Potential Quickbooks Problems in Nonprofit Accounting
- Net incomes differ between the Balance Sheet by Class and Profit & Loss by Class reports.
- The Balance Sheet by Class report makes calculations to balance a transaction’s classes. In some cases, this causes the net income for a class on the Profit & Loss by Class report to differ from the net income for that same class on the Balance Sheet by Class report.
Why is this important?
- The two primary financial statements in QuickBooks are the balance sheet and the profit & loss statement.
- Net Income appears as a line item on both reports.
- It’s the bottom line on the Profit & Loss Standard report.
- It’s a component of Equity on the Standard Balance Sheet report.
Why is my balance sheet by class out of balance?
- The balance sheet uses the standard accounting equation: Assets = Liabilities + Equity.
- The balance sheet in total (across all classes) follows the equation and always balances. However, it’s possible that the balance sheet doesn’t balance for an individual class. When this happens, the report shows “Unbalanced Classes.”
The following is an excerpt from a book titled Running Quickbooks in Nonprofits by Kathy Ivens. This book provides information about using QuickBooks for Nonprofits to track financial data in nonprofit organizations.
Because QuickBooks is so easy to use, and so inexpensive, many nonprofit organizations have adopted it for financial record keeping. However, right out-of-the-box QuickBooks for Nonprofits isn’t really designed for the special bookkeeping functions required for nonprofit accounting.
As a result, most nonprofit organizations have to spend extra money to have accounting professionals create reports from their QuickBooks data. The goal of this book is to help you understand how to set up QuickBooks for nonprofit accounting, make it easier to create transactions properly, and reduce the amount of money to spend on accounting fees.
Even QuickBooks Premier Nonprofit edition isn’t a solution because the software wasn’t written to accommodate all the needs of nonprofit accounting.
I’ve worked with, or examined hundreds of QuickBooks nonprofit installations, and I’ve seen a wide variety of work arounds (including add-on software) aimed at making QuickBooks work properly. Most of them don’t work well, are too complex to be efficient (even for experienced QuickBooks users), and some don’t really work at all.
Downfall of Using Classes in Quickbooks
Most consultants recommend using classes in Quickbooks to get the segregation of financial activity a nonprofit needs for funds, functional areas, programs, funding sources, etc. In QuickBooks, you get two data elements for coding and this severely limits reporting. You have Account and Class. Jobs is a third data element, but is not universally available in the QuickBooks report structure. If a nonprofit requires reporting on more than two dimensions, QuickBooks simply can t handle it and a majority of financial reporting must be done outside the system in spreadsheets, which can create internal control deficiencies.
Since not-for-profit organizations have distinctly different reporting requirements from commercial companies, your accounting software must be able to handle those differences. With a true nonprofit accounting software solution like FastFund Accounting from Araize, reporting tasks are simplified and can be accomplished in a timelier manner.
Fund accounting solutions that specialize in serving the not-for-profit sector will also have more robust integrated options for not-for-profit specific tasks, such as grant management, indirect cost allocations, and donor management.
Want to read more? Check out these insightful articles:
- What is Fund Accounting: Basics and Best Practices for Nonprofits
- Advantages of Fund Accounting Software for Nonprofits
- Chart of Accounts for Nonprofits: Guide to Proper Setup
- Why QuickBooks Won’t Work for Fundraising Donor Management
- Nonprofit Accounting: Guide to Financial Statements Management
- Nonprofit Net Assets and Balance Sheet Explained
Did you find this article useful? We welcome your thoughts and comments.
Quickbooks for Nonprofits does not follow nonprofit fund accounting guidelines, which can pose compliance risks for nonprofits. Not-for-Profit Organizations must follow strict accounting guidelines.Do not for profit entities use fund accounting? ›
Fund accounting is an accounting method that is mandatory to use when receiving donor-designated funds. Because it helps the nonprofit maintain transparency on how the money received is spent, it is a nonprofit accounting standard.How do non profits use QuickBooks? ›
- Select Settings ⚙️, then Account and settings.
- Select Advanced.
- In Company type, select Edit ✏️.
- Select the Tax form ▼ dropdown, then choose Nonprofit organization (Form 990).
- Select Save, then Done.
- Sign out and sign back in to see the changes reflected throughout QuickBooks.
QuickBooks® Non-profit reports include all the great reports that you get in the regular QuickBooks® Pro and then include a number of reports designed specifically for Non-profits. These reports are not available in QuickBooks® Pro, Simple Start, and QuickBooks® Online Essential.When should you use fund accounting? ›
Fund accounting allows nonprofits to clearly understand how much of their funding is spent on various fundraising, program, and operational expenses. This allows the organization to make more accurate budgets and ensure they have the funds necessary to continue operating in the future.What comes under fund accounting? ›
Fund accounting is an accounting system for recording resources whose use has been limited by the donor, grant authority, governing agency, or other individuals or organisations or by law. It emphasizes accountability rather than profitability, and is used by Nonprofit organizations and by governments.What kind of accounting do nonprofits use? ›
That's why nonprofits employ a type of accounting known as fund accounting. Fund accounting enables nonprofits to allocate their money into different groups or “funds” in order to keep them organized and only spend funds on what they're designated for.What accounting method do nonprofits use? ›
Established nonprofits generally use the accrual method (aka “accrual basis”) for preparing and issuing financial statements. Smaller or startup organizations often choose the cash method (aka “cash basis”).What accounting method should a non-profit use? ›
Accrual basis accounting is the more accurate accounting method because it matches revenues with expenses in the same period in which they occurred. PRO TIP: Most very small nonprofits operate on a cash basis because it is easier to understand and requires less accounting experience.How do I record donations in QuickBooks nonprofit? ›
- Select + New. Then, select Pledge.
- Select Customize, then choose your donation template.
- Make sure to select the donor and the donation item you set up.
- Select Save and close or Save and send if you want to email your donor a receipt of their pledge.
QuickBooks Premier Nonprofit Pricing
$799 per year for one user. $1,099 per year for two users. $1,399 per year for three users. $1,699 per year for four users.
- Limited Purposes. In order to be exempt under the tax laws, a nonprofit organization can only perform certain functions listed in those laws. ...
- Lobbying. ...
- Public Scrutiny.
QuickBooks Enterprise Nonprofit is a robust platform suitable for larger nonprofit organizations. Small to midsize nonprofits will be best served by QuickBooks Premier, QuickBooks Premier Plus or one of the QuickBooks Online options.Do nonprofits have to use accrual accounting? ›
The accrual method of accounting should be used by organizations starting out with larger amounts of funding, paid staff, and plans to raise additional funds from larger donors such as foundations or government entities. Generally accepted accounting principles also require the use of the accrual method of accounting.What is the best business structure for a nonprofit? ›
The corporation is the most common and usually best form for a nonprofit organization. Some of the benefits follow. Separate entity. Because a nonprofit corporation is its own entity, it can enter into contracts as its own entity, which protects the nonprofit members from liability.What are the disadvantages of fund accounting? ›
- Maintaining the amount in separate funds makes it difficult to separate the amount from the general fund to a specific purpose fund.
- The account doesn't reflect the actual value of the fund. ...
- Sometimes it leads to excess spending but lower control of the fund; mostly, it happens in government organizations.
General Accounting vs Fund Accounting
General accounting standards involve recording all income flowing into a business and all expenses in the general ledger. Fund accounting comprises the general-ledger, investment holdings, and capital allocations.
Fund accounting refers to the maintenance of the financial records of an investment fund. Accounting records must be kept for the investor activity, the portfolio activity, the income earned and the expenses incurred by the fund.Who uses fund accounting? ›
Examples of the types of entities that may use fund accounting are artistic foundations, charities, churches, colleges and universities, governments, hospitals, nursing homes, and orphanages.What are the two types of expenses in fund accounting? ›
There are two main categories of business expenses in accounting: operating expenses and non-operating expenses.
- Governmental funds. Code 000 - General (Current Expense) Fund – should be used to account for and report all financial resources not accounted for and reported in another fund. ...
- Proprietary funds. ...
- Fiduciary funds.
- Balance Sheet.
- Income Statement.
- Statement of Cash Flows.
- Statement of Functional Expenses.
The key difference in for-profit and nonprofit standards is the concept of fund accounting, which focuses on accountability rather than profitability. Whereas a profit entity would have a general ledger, which is a single self-balancing account, nonprofits typically have a number of general ledgers, or funds.What are the 3 types of nonprofits? ›
There Are Three Main Types of Charitable Organizations
Most organizations are eligible to become one of the three main categories, including public charities, private foundations and private operating foundations.
The typical way most nonprofit organizations recognize revenue is to: Record income as cash. Invoice customers and donors and record that income as accounts receivable.What do donations go under in QuickBooks? ›
Under Customers, select Credit Memo. Enter or select the Customer you donated the product or service to. In the Product/Service column, select the Charitable Contributions item and enter the Amount of your donation as a positive number. In the Memo field, enter Donation or Charitable Contribution.Is donation an expense in accounting? ›
For a business, create an invoice to the charity for the products or services that were donated. To record the expense, set up an expense account for donations. Next, create an entry in your accounting system that represents the product or service that was donated. You can define this as "charitable contribution."How do you categorize donation income in QuickBooks? ›
In the Account dialog, select Income from the Account Type ▼ dropdown menu. From the Detail Type ▼ dropdown menu, select Non-Profit Income. In the Name field, enter "In-kind donations". Select Save and Close.Can I pay myself as founder of a nonprofit? ›
It is perfectly legal to pay individuals for their work! Our government realizes that it would be challenging to ask people to do the work needed to grow a charity without any form of compensation. It is legal for nonprofit founders and officers to get receive a salary for their work for the nonprofit.Can I file a 990 through QuickBooks? ›
Additionally, filing Form 990 is currently unsupported in QuickBooks Desktop. If you think your organization/company qualifies to file it, I recommend working with an accountant or financial advisor to get more details about it.
- Qgiv | Online Fundraising.
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- Neon One | Cloud-based CRM Software.
- Double the Donation | Matching Gifts.
- DonorSearch | Wealth Screening.
- Kindful | Donor Data Fundraising Software.
The real data from National Center on Charitable Statistics reveals that approximately 30% of nonprofits fail to exist after 10 years, and according to Forbes, over half of all nonprofits that are chartered are destined to fail or stall within a few years due to leadership issues and the lack of a strategic plan, among ...What do nonprofits struggle with the most? ›
- Money. ...
- Membership recruitment and retention. ...
- Staffing and volunteers. ...
- Technology. ...
- Decision making.
More In File
Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.
- Limited Users and File Size. ...
- Difficulty Adapting to New Business Requirements. ...
- Lot of Manual Data Entry. ...
- Weak Audit Trail. ...
- Limited Financial Visibility.
Your access to QuickBooks Desktop Payroll Services, Live Support, Online Backup, Online Banking, and other services through QuickBooks Desktop 2020 software will be discontinued after May 31, 2023. This also means you won't receive critical security updates starting June 1, 2023.What does a bookkeeper do for a nonprofit? ›
Nonprofit bookkeepers are responsible for the day-to-day activities of the nonprofit organization. They track and manage the daily transactions for the organization and record the regularly occurring financial changes. Nonprofit finances operate differently from for-profit organizations.Are 990s cash or accrual? ›
GAAP usually assumes that all activities within an organization are recorded under the same accounting method. In fact, most nonprofit organizations that file tax returns (Form 990) usually file accrual-based returns.Does a 501c3 have to show financials? ›
Yes, nonprofit corporations are required to make their financial statements available to the public. Form 990 includes a nonprofit's figures for revenue, expenses, assets, and liabilities, and all 501(c)(3) nonprofits are required to submit Form 990 to the IRS annually.Do nonprofits need an audit every year? ›
Stat. § 460/4 | A charitable organization with annual contributions over $300,000 must file an audited financial statement prepared by an independent CPA.
- American Heart Association. The mission of the American Heart Association is to prevent heart disease and strokes. ...
- American Red Cross. ...
- United Way. ...
- Humane Society of the United States. ...
- Salvation Army.
The founder or founders of a newly formed nonprofit typically hold the position of Board President or Chairman of the Board (often referred to as just “Chairman”). The founder's official title and role can change depending on the needs and desires of the board.What type of accounting is QuickBooks? ›
QuickBooks is an easy-to-use small business accounting that tracks and organizes your financial information for you, eliminating manual data entry. QuickBooks automates tasks such as bookkeeping, invoicing, time tracking, Value Added Tax (VAT) management, budgeting, bank reconciliation, and inventory management.What is QuickBooks classified as? ›
Your monthly software subscription (even if you paid for it annually) is a service item and is fully expensed as paid. Only software (>$200) that is not of a subscription basis is considered an asset.What expense does QuickBooks fall under? ›
Once you sign up for QuickBooks Self-Employed, here is how to categorize your purchase of QuickBooks Self-Employed as an expense: Sign in to your QuickBooks account. Connect your bank account to the app. Once your bank transactions are downloaded, categorize your QBSE bill transaction under “business taxes and fees.”How many types of fund accounting are there? ›
There can be two types of funds one is restricted, and the other is unrestricted. The restricted fund is used for a particular purpose, but unrestricted funds can be used for any purpose or general purpose. The non-profit organization uses the same standard as a profit organization uses.Do I need an accountant if I use QuickBooks? ›
Even if you manage your money using QuickBooks, it's worth having your tax return checked and approved by an accounting expert. If you have a more complicated business structure, such as a limited company, it's rarely advisable to do your own tax return, given the detailed knowledge required.Does QuickBooks act as an accountant? ›
A special program that was developed with the needs of accounting specialists in mind, QuickBooks Online Accountant allows you to complete and manage accounting tasks for multiple client companies in one place, as well as provide project and task management tools for your own firm.Why do I need an accountant if I use QuickBooks? ›
You need an accountant to ensure compliance
QuickBooks assists by providing information to perform these functions, but again, QuickBooks will not detect errors and confirm the filings are complete and accurate. You need an accountant to ensure compliance.
As your reporting entity, we are required to file an annual information return with the IRS and provide you with a Form 1099-K. Form 1099-K reports the gross amount of reportable transactions for both the calendar year and its corresponding months to the IRS.
Answer: The 4 main types of QuickBooks transactions are: 1. Banking and credit card transactions 2. Customers and sales transactions 3. Vendors and expenses transactions 4.Can I write off QuickBooks as a business expense? ›
Purchasing and using accounting software for your business is another tax deductible expense! Self-employed individuals and business owners that use QuickBooks to manage their bookkeeping and other business responsibilities can deduct the software cost on their taxes as it directly helps them run their business.What are the two types of QuickBooks? ›
QuickBooks offers different versions of its products with varying functionality and tiered pricing to cater to a wide range of user requirements and situations while not overwhelming small business owners and freelancers. Two key options are QuickBooks Online (QBO) and QuickBooks Self-Employed (QBSE).Does QuickBooks do expense Management? ›
The QuickBooks Self-Employed app comes with built-in receipt scanning to help you track and organize your expenses. Simply snap a photo of a receipt and QuickBooks Self-Employed will attach it to the expense it matches. When it comes time to file taxes, receipts are stored and ready to use.