![]() Very likely, you’ll also have agreements that do not align perfectly with your fiscal year, and/or will have agreements that repeat for more than one year. Ideally, your organization will grow and obtain more grants and contracts each year. However, grants tend to grow in complexity, allowing for multiple types of functional expenses. If your grant expenses can be 100% assigned to a specific program or 100% general and administrative – like grants Oak and Maple, above – it would be easy to have Programs by Grantor. The two statements are very difficult to reconcile without going through each grant individually, and breaking out the activity. But the statement of activity on the 990 and the 990 look like this: This statement of activity by class where the classes represent each class is very easy to tie back to the grant budgets. When Craig’s Plant Rescue runs their statement of activity by class from QBO to show that the book financial statements reconcile to the organization’s 990, and to the audited financial statements, they’ll have a report that looks like this: If Craig’s Plant Rescue deviates from these usages, they may be asked to return the funds. When Craig’s Plant Rescue won the grants, they submitted budgets for use of the funds in the amounts shown below. Craig’s Plant Rescue has four different programs (Alpha, Beta, Gamma, and Delta) and five grantors (Basswood, Elm, Oak, Maple, and Pine). But if any of your grants fall into more than one functional type (many grants have budget elements under both Program and General & Administrative), you no longer have a statement of activity by class that will align with your 990 or audited financial statements.įor example, let’s say that Craig’s Plant Rescue organized their accounting to use QBO classes to track each grantor instead of by organization function. If you can classify the revenue and expenses for each grant 100% under one – and only one – functional expense type, this will work until you have more grants than fit across your screen. One of the big reasons to use classes to track functional expenses is to produce financial statements that clearly and cleanly align with the organization’s 990, and audited financial statements when they undergo an independent audit. ![]() Not all Grantors fall into only one functional expense There are a few things to consider before doing this. It’s very easy to leap from using classes to track functional expense types, to using classes to track revenues and expenses associated with individual grants – especially when talking about Program-specific grants. Use Classes For Tracking Functional Expenses – Not Grantors Using QBO classes to align your statement of activity by functional expense type is a way to implement fund accounting for nonprofits. As the organization grows and develops additional programs, projects, and campaign, it provides financial clarity to add sub-classes to the Program class for those separate programs, projects, or campaigns. See How to Allocate Overhead Expenses in a Nonprofit Organization for more information on the Allocate class, and how it’s used. Technically there should be a fourth, Allocate, but this class is for period-end procedures only, and should not appear in final financial reports. This is because when reviewing a statement of activity by class, the accounts make up the vertical descriptions for each row, and the classes make up the horizontal descriptions across each column.Ī new nonprofit organization should have no fewer than three classes: General & Administrative, Fundraising, and Program. When discussing how expenses (and revenues) are coded, I describe the account code as the “vertical” element and the class as the “horizontal” element. This supports organization-wide reporting and assists with translating the financial statements into the form 990. When setting up a nonprofit organization’s books in QBO, we recommend using QBO’s “class” feature to track functional expenses. In this article, I’ll explain how those functions are tracked in the financial statements using by using QuickBooks Online aka QBO classes for your nonprofit accounting, and identify a few potential mistakes to avoid. ![]() ![]() In another article, I explained how to separate expenses by function. The debits and credits of accounting remain the same, but accounting for nonprofit organizations includes a unique challenge: functional expenses. ![]()
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