Does QuickBooks Support True Fund Accounting?

Out of the box, QuickBooks doesn’t completely support true fund accounting, but there are several simple, low cost ways to provide fund accounting in QuickBooks.

Fund accounting is a method of accounting used by public sector (e. g., cities and towns) and non-profit organizations because these entities have a need to track balances and expenditures across multiple purposes, or funds.  Money is normally appropriated to a purpose at the start of a fiscal year, and expenditures are made against the available balance for that particular purpose or fund over the course of time.  As a result, public sector and non-profit entities have a need to produce balance sheets and income statements for each fund as well as the overall entity.  In contrast, a for-profit business produces a balance sheet and income statement for the overall entity but doesn’t have the need to produce balance sheets for groups within the overall business, such as individual departments.

Support for fund accounting in QuickBooks consists of 2 needs:

  1. Preparing an income statement for each fund
  2. Preparing a balance sheet for each fund

The first need, preparing a fund income statement, is easily handled by QuickBooks through the use of classes.  Classes are a tool to track 1 aspect of an entity’s finances and are managed on the Lists->Class List menu selection.  Generally speaking, simply creating a class for each fund and assigning a class to all transactions solves the need to track income and expenditures across funds.  See our article for more information on the role of class tracking.

Where QuickBooks out of the box falls short in supporting fund accounting is in fulfilling the second need – preparing a balance sheet for each fund.  There are 2 ways to address the need for fund balance reporting:

  1. Use a third-party add-on
  2. Track fund balances in a separate program, such as Excel

Because of the popularity of QuickBooks, third-party developers have produced a variety of tools to add features and capabilities to the program.  Intuit maintains a list of many of these add-ons on the Intuit Marketplace.  For QuickBooks, there are several add-ons listed in the Fund Accounting category.  One add-on, FundsFix by Qfix Software Llc, addresses the need to produce a balance sheet for a fund.  Based on the user comments reported on the Intuit Marketplace, this add-on has been well-received.

Another approach is to use a separate program such as Microsoft Excel to track fund balances.  Normally, a spreadsheet would consist of the opening fund balance at the start of the fiscal year with additional columns for the year-to-date expenditures manually entered from a QuickBooks report and the calculated remaining fund balance.  For simple fund accounting needs, this approach is workable.  However, given the availability of a very low-cost add-on to address this need, it’s an approach that is only suitable for the simplest fund accounting requirement.

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Comments

  1. I am a recently retired corporate controller in the commercial accountinig environment. No fund accounting until now.

    The 501(c)3 I work with has Quick Books non profit – silly but workable. Question: when creating a class for a grant or fund (however anyone wants to term it), do I need/should I create a GL account to capture the equity side of that class?

    Upon coming to this 501(c)3, certain designs were implemented in the program that were not done correctly. GL accounts were created for each Grant/Fund, but since my coming on board, I have not create such GL accounts. Should I?

    Also, I need to redesign the COA, so that such a cost structure will collect costs in and ODC, and indirect cost and applicable rate environment. The GL expenses use COA expense accounts for both indirect and direct costs, making it very difficul/ impossible to compute/calculate indirect costs.

    • Chief Mechanic says:

      More recent versions of QB allow classes to be assigned to balance sheet accounts, but that’s not an approach we recommend.

      QB does not directly handle the fund accounting question of how much is in a fund (ie, class). To get that information, you’ll have to do a P & L over all time periods. If your P & L shows a profit, there is still money in that fund. You’d have to divide your balance sheet items among your different funds using a tool such as Excel.

      We don’t favor GL accounts for each grant/fund. It’s one of the biggest things we try to fix when doing cleanups. Keep your GL COA simple. You’ll get more comparable results and fewer data entry errors. For grants/funds, use classes. You can easily merge accounts in QB. Therefore, if you apply classes thoroughly (ie, make sure no income/expense transactions are unclassed), you can do away with the redundant GL accounts.

      You can renumber accounts so they appear where you want them. Grouping direct vs indirect costs in your COA is something you’d have to do, because it’s not a distinction that’s in QB (other than COGS being separated from other costs, or “other expenses” being separated from ordinary expenses).

  2. Anne Swearingin says:

    We are a non-profit trying to use quick books for 70 different funds. Not only do I have to track each fund, each fund is listed in one of 4 classifications – Restricted, Temporarily Restricted, Agency and Unrestricted. If I put each fund into the system as a class how do I then break it down into one of the 4 groups I have listed?