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How to use fund accounting in QuickBooks

What is fund accounting?

The Financial Accounting Standards Board (FASB) requires nonprofit organizations to divide financial information among a variety of categories (funds) and to use standardized nonprofit reports to report on these funds. These funds indicate that there are restrictions on the use of resources, and they are used to measure the revenues and expenditures arising from particular activities.

Each nonprofit organization is responsible for the proper collection, disbursement, and control of all money relative to the funds the organization receives. For example, a school superintendent is responsible for all School Activity Funds, including agency funds that are held by the school in a temporary, purely custodial capacity.

Who uses fund accounting?

Any tax exempt organization that meets Section 501 of the United States Internal Revenue Code is a nonprofit fund accounting operation. All federal, state, and local government organizations are fund accounting operations.

Using fund accounting in QuickBooks

Fund accounting assists in determining the amount of revenue (or expense) realized from an activity or fund after taking into account expenditure items. It can also help you determine if theft has occurred, if sales are too low, or if the markup is sufficient to cover costs or to allow a suitable profit for fundraising.

You can use QuickBooks to:

  • Enter and manage fund information.

  • Track and report on funds from multiple sources across multiple budget periods.

To enter and manage funds in QuickBooks

  1. Create a class for each fund that you want to track.

  2. Assign the appropriate class to each QuickBooks transaction.

    When you receive a donation or payment, select the class that corresponds to the appropriate fund for all receipts and disbursements. This enables you to track the amounts related to each activity or fund separately.

To track and report on funds

  1. Generate the Budget vs Actual by Programs/Projects report.

    When you enter funds as classes, this report compares your budgeted income and expenses to your actual income and expenses by program or fund.

Limitations in fund tracking in QuickBooks

Although QuickBooks provides you with a procedure for checking your fund balances, it cannot give you a Statement of Financial Position (Balance Sheet by fund/class report). It can, however, give you a Statement of Financial Income and Expense (profit and loss report) by fund (class) and a Statement of Functional Expense report.

You can use these reports to help categorize your income and expenses correctly and to save time filling out IRS Form 990. You can also use the Budget vs Actual by Program/Project report to monitor real-time activity of your funds (when you set up funds as classes).

See also

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