How To Set Up QuickBooks Online for Nonprofits

After initial setup, you’ll land in the dashboard. Beside your nonprofit’s name, click the “+LOGO” icon to add your logo. Then, click the gear icon on the right to access Account and Settings.

QuickBooks Online Dashboard After Initial Setup

Company Name & Type

Changing Company Name and Type

You can add a logo for your nonprofit under the Company Name settings. If your legal name is different from the company name, you may change that. However, the most important thing is to change the tax form to Nonprofit Organization.

Advanced Settings

After modifying Company settings, proceed to Advanced settings. You may explore other settings later as you navigate through QuickBooks Online.

Accounting Settings

• Accounting:
  • By default, QuickBooks Online patterns your financial year with the calendar year. If your financial year is a fiscal year, change the month of the financial year.
  • The accrual method is also set by default, but you may change it to the cash method if it’s your nonprofit’s accounting method. Make sure the accounting method chosen here matches the accounting method shown on your Form 990 Part XII, Line 1.
• Chart of Accounts: You’ll want to enable account numbers because we’ll import a new set of accounts for nonprofits in the succeeding sections of this article.

Classes and Locations

• Track Classes: Toggle this feature on because we will use classes to track income and expenses based on Form 990’s classifications. Also, select to assign classes one to each row in transaction in case a single entry must be spread across several classes.
• Track Locations: Toggle this feature on because we will use locations to track program services.

QuickBooks Online uses the terms “invoice” and “sales receipt.” These terms aren’t consistent with a nonprofit organization’s purpose. Instead, let’s modify the look and feel of your nonprofit invoices and receipts in QuickBooks Online.

Going to Custom Forms Style

Under Account and Settings, go to Sales, then click the green Customize look and feel button. QuickBooks Online will bring you the Custom form styles window. By default, there is one form included here. You may edit the existing form or create a new one by clicking on the New style drop-down menu.

For demonstration, let’s create a new form for acknowledgment receipts. When you receive cash and noncash donations, the best term to use is “acknowledgment receipt” instead of sales receipt. To make one, click New Style and then Sales Receipt.

Customizing the Acknowledgement Receipt Design

Under the Design tab, you can modify the template, add logo, change the color and font, and add EFT details. There are six invoice templates from which to choose, and we used the template Bold for our example.

Customizing the Content of the Acknowledgement Receipt

If you navigate to the Content tab, you can customize the information appearing in the form. Click the section of the form where you want to change the content. Once you’re good to go, click Done to save your new form. Perform the same process whenever you need more customized forms.

We want to design our nonprofit chart of accounts based on Form 990 to make it easy to complete the return.

We created a codification system based on the form 990 part number, account category, account class, and account subclass. The account codes should consist of seven digits like the example below:

08-40101

The codification system works this way:

• Part of Form 990: This number can help you identify which part of Form 990 a particular account belongs to. In this case, all balance sheet accounts (assets, liabilities, and net assets) belong to Part 10. All revenue accounts belong to Part 8 and all expense accounts belong to Part 9. In the example above, the account belongs to Part 8 of Form 990, which is the 990’s Statement of Revenue.
• Account Category: This number pertains to the major category of the account: 1 for assets, 2 for liabilities, 3 for net assets, 4 for revenues, and 5 for expenses. In the example above, the account category number shows that the account is a revenue account.
• Account Class: This number refers to the major account groups under each account category. Account classes are also based on Form 990’s format. In the example above, class 01 refers to the part of Form 990’s contributions, gifts, grants, and other similar accounts.
• Account Subclass: This number represents the specific accounts under each class—and you may create several subclasses if need be. It doesn’t matter if the subclasses aren’t present in Form 990 as long as their parent account or account class reports the correct amount. In the example above, subclass 01 refers to Form 990 Part 10’s federated campaigns line items.

Importing the Chart of Accounts

We created a chart of accounts patterned after Form 990 for ease of use. Download this spreadsheet file to access our sample chart of accounts.

To better understand what we’ve done, open the spreadsheet file and compare it to the Form 990. Let’s use Part VIII of the Form 990 as an example.

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Chart of Accounts for Nonprofits

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All of the accounts that flow to Part VIII begin with the code 08. The names of each of these accounts match exactly the line items in Part VIII. By matching the Form 990 exactly, preparing the return will be simple. In Step 5, we’re going to use classes to separate each of these accounts into their proper columns in Part VIII.

Now, let’s import the chart of accounts:

1. On the left side menu, go to Accounting and then Chart of Accounts. Then, click the drop-down arrow in the green New button. Select import.

2. Upload the Excel file we provided. Click Browse to locate the file on your computer, then click Next.

3. Map out the fields. If you’ve mapped out the fields correctly, there must be a green check mark similar to the image below. Click Next afterward.

4. Double-check flagged detail types. QuickBooks Online doesn’t recognize misspelled or undefined detail types. In the example above, the detail type “commission and fees” should be “commissions and fees.” Moreover, there is no detail type for “charitable contributions.” Take note of detail types when you add accounts in the spreadsheet we provided.

5. Click Import when all flagged accounts have been resolved. When a specific account is already on QuickBooks Online, you will see the alert below. If you want to import the account, change the account name. Otherwise, uncheck the box beside the account number.

You can create products and services right out of the invoice form by clicking the empty space. Click the + sign, and QuickBooks Online will show you how to create a new product or service item. Revenues can’t be recorded directly to an account, so you’ll need to create a product or service item for your invoices. Download this spreadsheet file that you can use to import products and services to QuickBooks Online.

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Products and services list

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When you create service items, be sure to assign them to the account where you’d like them to appear on Form 990. If the service item you’re creating will always be assigned the same class, then you can designate that class when creating the service item—and that class field will populate whenever that item is used automatically. If a service item could be used across multiple classes, then leave the class blank in the service item screen. You’ll have to assign the class as transactions are entered.

Importing Products and Services

Once you’ve added all the necessary service items to your spreadsheet, you need to import the spreadsheet to QuickBooks Online. This process is very similar to how you imported the chart of accounts in Step 4.

We need classes and locations to track nonprofit activities based on Form 990. Take note that you can only apply classes to income and expense accounts, not assets and liabilities.

• We’ll use classes to track categories of income and expenses, such as administrative, program service, fundraising, and so forth.
• We’ll use locations to track the income and expenses of individual program services. If you only have one program service, then you don’t need to set up locations.

To add classes and locations, click the Gear icon then proceed to All Lists.

You’ll arrive in the Lists window. Click Classes or Locations (see highlighted parts).

Adding Classes & Locations

• Adding a Class
• Adding Locations

Adding a Class

We need to add six classes: three income classes and three expense classes. These classes are based on the columns of Form 990.

Income Classes (Form 990, Part VIII):

1. Related revenue.
2. Unrelated revenue.
3. Excluded revenue.

Expense Classes (Part 990, Part IX):

1. Program service expenses.
2. Management and general expenses.
3. Fundraising expenses.

Adding Locations

We need to enter a separate location for each program service that we offer and summarize in Form 990, Part III. You can add as many as you like depending on the number of program services you have.

Locations (Form 990, Part III)

Program Service A

Program Service B

Program Service C

In your setup, you should provide the actual program service names A, B, and C.

Don’t be confused by the label “Location.” We’re using the location classification provided by QuickBooks Online to separate income and expense by program services, which has nothing to do with location.

Rules in Classes & Locations

Every time you enter an invoice, bill, or any transaction, you must assign a class for each income or expense account in the transaction. For every line item assigned to the class “Program service expenses” or “Related Revenue,” you must also add a location, which is the exact program service to which the revenue or expense relates.

Unfortunately, you can only have one location per transaction. As such, you can’t record a single transaction that affects multiple program services.

Sample Cash Donation

In the image above, take note that we are recording “related revenue” for Program Service A. You can enter the class manually or they can auto-populate when you already set a specific class for a particular product/service.

Writing a Check and Assigning it to a Location

When issuing checks, all expenses must be assigned to a single location or program service (see image above). However, each check can have multiple expense categories and multiple classes. You can even assign a single expense category to multiple classes by listing the expense category twice with different classes assigned to each line.

Always remember that even though you can add multiple classes, all the classes must be related to the location or program service. It’s always best to write separate checks for separate locations (program services) to avoid accounting difficulties, but if you do have a single check that must be split between program services, then you can do a journal entry.

Making Journal Entries with Different Classes

The above journal entry transfer management fees from Program Service B to Program Service A. You can also use journal entries to allocate expense items among multiple classes, although you generally want that allocation when recording the original check or expense.

Journal entries can be used to make corrections for misclassifications in locations and classes. If you’re unfamiliar with how journal entries work, check out our guide on journal entries, which includes the parts and types.

Go to Reports and select the Profit and Loss by Class report. QuickBooks Online will generate the generic report. Click Customize.

Proceed to Filter and tick Distribution Account and Class. Choose “All Income Accounts” for the distribution account and all the revenue classes (related revenue, unrelated revenue, and excluded revenue) for the class. Click Run Report to generate it.

Change the report name to “Statement of Revenue.” By default, the name is “Profit and Loss by Class.”

Save your customized report so you can use it later.

Here is the sample statement of revenue:

Sample Statement of Revenue from QuickBooks Online

Compare this report to Part VIII of Form 990 to see how easy it will now be to transfer the numbers. Note that we do have a Class for Column D, Excluded Revenue, but don’t have any activity in that class, so it doesn’t appear.

For the statement of functional expenses, the process is the same. Customize the Profit and Loss by Class report. Go to Filter and tick “Distribution Account and Class.” Select “All Expense Accounts” for the distribution account and all expense classes (program service expenses, management and general expenses, and fundraising expenses).

Expense Classes for Statement of Functional Expenses

Change the title of the report as well to make it similar to Part IX of Form 990. Here is the sample Statement of Functional Expenses from QuickBooks Online:

Sample Statement of Functional Expenses

Form 990 requires a comparative balance sheet (beginning and ending balances). You can generate a balance sheet in the Reports section and compare it with the previous year (see image below).

Creating a Comparative Balance Sheet

When filling out the balance sheet in Form 990, enter the previous year (PY) balances in column A of Form 990 and current year balances in column B.

The QuickBooks Online balance sheet will only show the balance of net assets. If your nonprofit is following ASC 958, you have to refer to the spreadsheet we provided earlier for segregating donations with and without restrictions.

Part III requires total expenses and revenues for the three largest program services. Since we’ve tracked individual program services as locations, you can easily retrieve the information for part III by running an income statement by location.

1. Go to Reports and select the Profit and Loss by Location report.

2. Change the report title to “Statement of Program Accomplishments.”

Here is the sample statement of program accomplishments:

Sample Statement of Program Accomplishments