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:
- Preparing an income statement for each fund
- 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:
- Use a third-party add-on
- 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.