In churches and other nonprofits, we usually deal with a lot of donor restrictions. People give for Missions or the Building Fund or for sending youth to camp or flowers for funerals and many many more. If you are a treasurer, you know the main question people ask about these donor-restricted funds…“How much money is in the ______ fund?”
In church accounting software, they normally make this pretty easy to answer this question. In QuickBooks, you have to do some special setup to get this answer. Here are the three ways I’ve seen this cared for including my recommended method:
Checking Subaccount Method
In this method, you setup several subaccounts under your bank account. The total of all the accounts equals the total of in the bank account.
Pros: Easy to tell the balance of any specific fund by either looking at the Statement of Financial Position or the Chart of Accounts.
Cons: Easy to make a mistake and accidentally deposit or expend money from the incorrect checking subaccount. Difficult to split transactions between multiple funds. Transactions still need an Expenditure or Revenue account which affects your Net Income. I like to have my Net Income just reflect Operating/General Fund Net Income.
Other Revenue & Other Expenditure Method
Pros: Removes donor-restricted activity from the operating activity in the Statement of Activities. Easily see the income and expenditures for a period for a fund.
Cons: Difficult to tell the balance of a fund unless you perform another entry to update balances in the Equity section. While the Operating Income excludes donor-restricted activity, the Net Income does include that activity.
Equity Method
Pros: Easy to see balances in either Chart of Accounts or Statement of Financial Position. Easy to record transactions including splitting between multiple funds. Easy to drill down and see the activity.
Cons: The only one I can think of is if you have to create GAAP financial statements for some reason. You would have to manually include the donor-restricted revenue and expenditures in your Statement of Activities. This is pretty rare.
In the video, I show you exactly how I set this up and post transactions.
Useful Links
- QBO’s Desktop App: https://jctaccounting.com/2024/07/05/what-is-the-desktop-app-for-quickbooks-online/
- Cleaning up Designated Funds: https://jctaccounting.com/2024/02/09/how-to-clean-up-a-churchs-list-of-designated-funds/
Thank you for the post and the video, this is a great explanation but I do have a quick question, when transferring money into the general fund to cover what has already been spent. How do I record the decrease in equity account if there wasn’t a specific check written?
Sorry for the slow reply, Kelly. If there wasn’t a check written, I usually use a Journal Entry. Since the fund is basically reimbursing the General Fund, you would credit the Expense and credit the Fund in Equity.