QuickBooks for Nonprofits: Complete Setup and Usage Guide

Why QuickBooks for Nonprofits?

QuickBooks is the most widely used accounting software among small and mid-sized nonprofits — and for good reason. It is affordable, well-supported, and flexible enough to handle nonprofit-specific accounting requirements like fund tracking, grant management, and Form 990 preparation.

However, QuickBooks is designed primarily for for-profit businesses. Using it effectively for nonprofit accounting requires specific configuration and an understanding of fund accounting principles. This guide walks you through both.

Choosing the Right QuickBooks Version

QuickBooks Online (Recommended for Most Nonprofits)

TechSoup discount: Nonprofits can get QuickBooks Online through TechSoup at significant discounts — often 50-70% off retail pricing. Check TechSoup.org before purchasing.

QuickBooks Desktop (Premier Nonprofit Edition)

The Desktop version includes a nonprofit-specific chart of accounts, Statement of Functional Expenses, and other sector-specific features. However, Intuit is gradually sunsetting Desktop products in favor of Online. For new implementations, QuickBooks Online is generally the better long-term choice.

Setting Up QuickBooks for Nonprofit Accounting

Step 1: Configure as a Nonprofit

When creating your QuickBooks Online account:

• Select "Nonprofit" as your organization type during setup
• This automatically enables nonprofit-specific features including donation tracking and the Statement of Activity report

Step 2: Set Up Your Chart of Accounts

The chart of accounts is the backbone of your financial system. Nonprofit accounting uses different account categories than for-profit businesses:

Asset Accounts

• Checking Account (operating)
• Savings Account (reserves)
• Accounts Receivable (pledges and grants receivable)
• Prepaid Expenses
• Fixed Assets (equipment, furniture)

Liability Accounts

• Accounts Payable
• Accrued Expenses
• Payroll Liabilities
• Deferred Revenue (advance grant payments)

Revenue Accounts (Income)

• Individual Contributions — Unrestricted
• Individual Contributions — Temporarily Restricted
• Foundation Grants — Unrestricted
• Foundation Grants — Temporarily Restricted
• Government Grants/Contracts
• Program Service Revenue (fees for service)
• Special Event Revenue
• Membership Dues
• In-Kind Donations
• Investment Income

Expense Accounts

• Salaries and Wages
• Employee Benefits
• Payroll Taxes
• Professional Fees (accounting, legal, consulting)
• Occupancy (rent, utilities)
• Travel
• Supplies
• Printing and Publications
• Technology and Software
• Insurance
• Depreciation
• Program Supplies
• Participant Support
• Training and Professional Development

Step 3: Set Up Fund Tracking

Nonprofits must track restricted and unrestricted funds separately. In QuickBooks Online, use Classes or Projects to track funds:

Unrestricted/General Operations — Revenue that can be used for any purpose

Board-Designated Reserves — Unrestricted funds set aside by the board

Temporarily Restricted — [Grant/Donor Name] — Funds restricted by donors for specific purposes or time periods

Permanently Restricted — Endowment funds where only investment income can be spent

Set up a Class for each major funding source — this allows you to run reports showing revenue and expenses by fund, which is essential for grant reporting and donor stewardship.

Step 4: Configure Donor Tracking

Use QuickBooks' Customer/Donor feature to track:

• Donor contact information
• Donation history
• Pledge tracking
• Donation receipts and acknowledgment letters

Tip: Create a naming convention for donors that allows easy sorting — for example, "LastName, FirstName" for individuals and the organization name for institutional funders.

Key Nonprofit Accounting Tasks in QuickBooks

Recording Donations

Go to + New > Sales Receipt (for cash/check donations) or Invoice (for pledges)

• Select the donor from the Customer/Donor list

Choose the correct income account (e.g., Individual Contributions — Unrestricted)

Assign the appropriate Class for fund tracking

• Add a memo with any donor-specified restrictions

Recording Grant Revenue

Grants require careful tracking because they typically come with restrictions:

When awarded: Create an Invoice for the full grant amount (this creates a receivable)

• When received: Apply the payment against the invoice

Assign the correct Class (the specific grant/fund)

• Track grant expenses against the same Class to produce accurate grant financial reports

Tracking Expenses by Function

Form 990 requires nonprofits to report expenses in three functional categories:

Program Services — Direct costs of delivering your mission

Management and General — Administrative and overhead costs

Fundraising — Costs of soliciting donations and grants

Use QuickBooks Classes or a custom field to tag every expense with its functional allocation. Some expenses (like the executive director's salary) may need to be split across multiple functions based on a reasonable time allocation.

Generating Nonprofit Financial Statements

QuickBooks can produce the key nonprofit financial reports:

Statement of Financial Position (nonprofit balance sheet) — Run the Balance Sheet report

Statement of Activities (nonprofit income statement) — Run the Profit and Loss report, preferably by Class for fund-level detail

Statement of Functional Expenses — Use the Profit and Loss by Class report, with Classes set up for Program, Management, and Fundraising

Statement of Cash Flows — Available as a standard report in QuickBooks

Preparing for Form 990

QuickBooks data feeds directly into Form 990 preparation:

Revenue by source — Run Profit and Loss by income category

Expenses by function — Run Profit and Loss by Class (Program/Management/Fundraising)

Top compensated employees — Run Payroll Summary report

Balance sheet data — Run Balance Sheet as of fiscal year end

Grant and contract detail — Run reports by Class for each grant

Most accountants who prepare Form 990 can work directly from QuickBooks reports. Export to Excel for easy sharing.

Common QuickBooks Mistakes Nonprofits Make

1. Not using fund tracking (Classes). Without Classes, you cannot track restricted vs. unrestricted funds — which is both an accounting requirement and a funder expectation. Set this up from day one.

2. Recording grants as lump-sum income. Multi-year or multi-deliverable grants should be recognized as revenue when earned (as you perform the work), not when the cash arrives. This is the accrual accounting principle.

3. Ignoring functional expense allocation. Every expense should be tagged as Program, Management, or Fundraising. Doing this retroactively at year-end is painful and often inaccurate.

4. Using personal accounts for organization expenses. All nonprofit transactions should flow through the organization's bank account. Co-mingling personal and organizational funds creates legal and accounting problems.

5. Not reconciling monthly. Bank reconciliation should happen every month without exception. This catches errors, prevents fraud, and keeps your books audit-ready.

6. Skipping backup and access controls. QuickBooks Online stores data in the cloud, but you should still export backups regularly. Limit admin access to authorized personnel only.

QuickBooks Alternatives for Nonprofits

If QuickBooks doesn't fit your needs:

For a comprehensive comparison, see our Best Nonprofit Accounting Software Guide.

Frequently Asked Questions

Is QuickBooks good for nonprofits?

Yes, for small and mid-sized nonprofits (budgets under $5 million). It handles basic fund accounting, donor tracking, and Form 990 preparation effectively. Larger organizations with complex multi-entity structures or advanced grant compliance needs may need purpose-built nonprofit software like Sage Intacct or Blackbaud.

Can QuickBooks track restricted funds?

Yes, using the Classes feature. Create a Class for each restricted fund (grant, donor restriction, or program) and assign it to every related transaction. This allows you to run reports showing revenue and expenses by fund.

Does QuickBooks generate Form 990?

QuickBooks does not file Form 990 directly, but it produces all the financial reports needed to prepare it. Most nonprofit accountants and tax preparers work from QuickBooks data to complete the form.

How much does QuickBooks cost for nonprofits?

Regular pricing is $30-$200/month depending on the plan. Through TechSoup, nonprofits can access significant discounts — often 50-70% off.

Setting Up Financial Systems Right

Proper accounting is not optional for nonprofits — it is a legal requirement, a funder expectation, and the foundation for organizational sustainability. Whether you use QuickBooks or another platform, the principles remain the same: track every dollar, separate restricted from unrestricted funds, allocate expenses by function, and reconcile regularly.

For help setting up your nonprofit's financial systems, contact Giddings Consulting Group.