How to Track Restricted Funds in Quickbooks: Part 2 - CodingNov 16, 2023
The most common question that I’ve been continually asked since starting my nonprofit financial consulting practice is, “How do you use QuickBooks to track restricted funds and how do you enter their transactions and find balances?” Well, in this three part series, I'm tackling that question. If you missed the first post, which covered how to configure your Quickbooks settings, you can find it here. Today, we’ll move into how to code those transactions.
As I shared with you in the first post of the series, Generally Accepted Accounting Principles (GAAP) require nonprofits to designate their net assets on their Statement of Financial Position as either funds with restrictions or funds without restrictions, also known as restricted funds and unrestricted funds.
In the video above, I share my screen to walk you through exactly how and where to code restricted funds, click-by-click, once you’ve configured your settings.
3 Places to Track Restricted Funds in Quickbooks
Expensing Restricted Funds
The first instance is an expense, or if you're using the accounts payable cycle of QuickBooks, you're using a bill setting. It's there that you need to record the class. Once you've toggled on the “classes” feature to be used in your settings, you can begin coding your first expense. On the right side of that expense transaction, you'll now find a new field that's called “class.” You can click the pull down button and select from the classes that you have set up, or you can set them up on the fly when it's your first time selecting a class.
Depositing Restricted Funds
The next opportunity to track restricted funds in Quickbooks takes the form of a deposit. Similar to the expense transaction, on the right side of the deposit transaction, you'll now see a class dropdown. You can click on a previously entered class or add a new class on the fly for the first time. Be very careful to use any existing classes by first finding them in the dropdown list rather than repeatedly entering them as new classes after you've already added them to the list. Likewise, if you want to add years to your class names, be intentional to keep that labeling consistent right from the start.
Journal Entries for Restricted Funds
The final place that I would say you might commonly bump into the need to record a class, is in the journal entries. Once again, you'll find that the class field is now available on the right side of the journal entry screen. I would hope your use of journal entries is rare because coding transactions at their source level is always preferable. A journal entry might be an indication that you've not done something when it came in and you're doing a lot of manual work or cleanup. As someone who has done a lot of this work. I can assure you that if you leave jobs to be done “later”, they typically get forgotten. This is even more true when there's staff transition. Somebody doesn't know to go back and do that task that was put off, and it can cause your restricted fund balances to be drastically incorrect. So I definitely recommend that you do all your coding at the expense or deposit level so that they're broken down and recorded in their parts as they come in.
Remember, this is a three part series. This post is part two, and I hope that this helps you to know where to record those transactions. We’ll jump into the reporting side in the next post. I look forward to seeing you there. In the meantime, if you have questions or you're feeling a little stuck and unsure, I want to remind you that I'm available. You can schedule a strategic consult here where we can talk about your unique situation. I'd love to help you!
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