Nonprofit Bookkeeping in QuickBooks: A Practical Guide

To do nonprofit bookkeeping in QuickBooks, switch the company to the nonprofit setting so it uses nonprofit language and reports, then turn on class tracking and build one class per fund and program (unrestricted, restricted, board-designated). Record donations and grants as contribution or grant revenue, tag every transaction with a fund class and a functional expense class (program, management and general, fundraising), and track restricted gifts until you spend them, releasing the funds when you do. Reconcile every account monthly. That structure gives you a Statement of Functional Expenses that maps straight to IRS Form 990.

Last updated July 2026.

Setting up QuickBooks for a 501(c)(3)

There is no separate nonprofit edition of QuickBooks Online. Most organizations run QuickBooks Online Plus or Advanced (Plus is the practical minimum because it includes class and location tracking) and configure it for nonprofit use. Many 501(c)(3)s with budgets under $10 million qualify for a donated or discounted subscription through TechSoup, so check that before you pay list price. Once you have the file, the setup is a short, deliberate checklist.

1. In Settings, Account and settings, Advanced, set the Company type to Nonprofit organization (501(c)(3)). This relabels customers as donors, invoices as pledges, and switches your reports toward nonprofit statements.
2. Turn on Track classes under the same Advanced screen, and check Warn me when a transaction isn't assigned a class so nothing slips through unclassified.
3. Turn on Track locations if you want a second tagging dimension, for example one location per grant or per physical site, separate from your fund classes.
4. Build a nonprofit chart of accounts: contribution income, grant income, program service revenue, and expense accounts grouped so they roll up cleanly. Rename the equity section to reflect net assets rather than owner's equity.
5. Create your class list before you enter transactions, and add your recurring donors, grantors, and vendors so coding is fast from day one.

Fund accounting with classes and locations

Nonprofits use fund accounting to prove that money given for a purpose was spent on that purpose. QuickBooks does not have a true fund-accounting ledger, but classes stand in for funds well when you set them up with discipline. Create a parent class for each net asset category and subclasses underneath: Unrestricted (operating), Restricted (with a subclass per grant or campaign), and Board-designated for reserves the board has earmarked but that are not donor-restricted. Every transaction gets a class, so at any moment you can run a Profit and Loss by Class and see exactly what each fund holds and has spent. If you need a second dimension, use locations for a purpose classes are already handling, not the same one, or the report gets muddy.

Recording donations and grants

How you record a gift depends on how it arrives. A cash donation with no strings is unrestricted contribution income; record it as a sales receipt (or a bank deposit if you only need the money in the books) coded to your contribution income account and your Unrestricted class. Add each donor as a customer so you can produce year-end giving statements. A promise to give later is a pledge, recorded so the receivable and revenue land in the correct year. Grants are usually restricted: record the award as grant revenue tagged to that grant's Restricted subclass, and if the grantor reimburses expenses rather than paying up front, track the receivable as you incur the costs. Keep the paper trail intact by digitizing every donation and expense receipt as it comes in, so acknowledgment letters and grant reports have their backup attached.

Tracking and releasing restricted funds

A restricted gift stays in its restricted fund until you spend money that satisfies the donor's purpose. Two things have to be true at once: the expense is coded to the right program's functional class, and the equal amount of restriction is released from restricted to unrestricted net assets. In QuickBooks you handle the release with a journal entry (or a pair of income lines) that debits the restricted class and credits the unrestricted class for the amount spent, so your Profit and Loss by Class shows the restricted fund drawing down as the program runs. Run that report every month. If a restricted fund still shows a balance after the program is complete, you either have unspent money to return or unbilled expenses to record.

Functional expense allocation for Form 990

Form 990 asks you to split expenses three ways: program services, management and general, and fundraising. The cleanest way to produce this in QuickBooks is a second class dimension where every expense also carries a functional class, so a single Profit and Loss by Class becomes your Statement of Functional Expenses. Direct costs are easy: program supplies are program, the audit fee is management and general, the gala mailing is fundraising. Shared costs like rent, utilities, and the executive director's salary have to be allocated across all three by a reasonable basis (square footage, headcount, or time studies). QuickBooks will not spread these for you, so post a recurring journal entry each month that moves the shared cost into program, management, and fundraising in your chosen percentages. Document the basis so it holds up on the 990 and in an audit.

In-kind gifts

Donated goods and services count as contributions and belong in the books at fair value. Record an in-kind gift with equal and offsetting entries: contribution income (in-kind) on one side and the matching expense or asset on the other, so the gift shows up without inflating cash. A law firm donating twenty hours of work, a company giving office furniture, or a volunteer providing specialized professional services all get valued and recorded. Note that routine volunteer time that does not require specialized skills is not recorded under GAAP even though it matters to your mission. Keep documentation of how you valued each in-kind gift, because it appears on Form 990 and reviewers will ask.

Common nonprofit transactions and their QuickBooks treatment

Monthly reconciliation and importing full statement history

Reconciliation is the control that keeps every fund honest. Each month, match QuickBooks to each bank and credit card statement so your fund balances rest on real cleared activity, not guesses. The catch for nonprofits, especially those catching up on a lapsed year or migrating from spreadsheets, is that the QuickBooks bank feed usually reaches back only about 90 days. Anything older has to come in by file. Download each PDF statement and convert your PDF statements to a .qbo file so every donation and expense imports cleanly, then use Transactions, Bank transactions, Upload from file in QuickBooks Online. That way you can rebuild a complete year, class each transaction to its fund and function, and reconcile month by month. For the full walkthrough see import into QuickBooks Online, and for the nonprofit-specific setup see convert bank statements to QuickBooks for nonprofits.

Frequently asked questions

Can QuickBooks be used for nonprofit accounting?

Yes. QuickBooks Online Plus or Advanced handles nonprofit accounting once you set the company type to Nonprofit organization and turn on class tracking. It records contributions, grants, and functional expenses and produces a Statement of Functional Expenses for Form 990. Many 501(c)(3)s get a donated subscription through TechSoup.

Does QuickBooks do fund accounting?

Not with a dedicated fund ledger, but it does fund accounting through classes and locations. You create a class for each fund (unrestricted, restricted, board-designated) and tag every transaction, then run Profit and Loss by Class to see each fund's balance and activity. It works well when you code every entry consistently.

How do I record donations in QuickBooks?

Record an unrestricted cash gift as a sales receipt or bank deposit coded to your contribution income account and Unrestricted class, with the giver added as a donor. Record a promise to give as a pledge, and a grant as grant revenue tagged to that grant's restricted class until you spend it.

How do I track restricted funds in QuickBooks?

Give each restricted gift or grant its own class and code all related revenue and expenses to it. Run Profit and Loss by Class monthly to see the balance. When you spend money that meets the donor's purpose, post a journal entry releasing that amount from the restricted class to unrestricted, so the fund draws down correctly.

How do I record grants in QuickBooks?

Record the grant award as grant revenue tagged to a restricted class named for that grant. If it is reimbursement-based, track the receivable as you incur eligible costs rather than booking the full award up front. Code every grant-funded expense to the same class so your grant report and release entries stay accurate.

Solid nonprofit books come down to structure and consistency: the right classes, every transaction tagged, and a monthly reconciliation you never skip. Once the foundation is set, the biggest time drain is getting historical activity into QuickBooks, which is why rebuilding a year is far faster when you convert bank statements to QuickBooks for nonprofits and import clean .qbo files instead of typing entries by hand.