Fund Accounting & Grant Reporting for US Nonprofits#
A nonprofit has to answer a question that most businesses never face: not only how much was spent, but which grant paid for it. A funder wants to see its own money reported on its own terms. This article describes how we set up and keep fund and grant tracking in a nonprofit's QuickBooks Online file, and what the nonprofit or its accountant receives. It is written for nonprofit finance leads and for accounting firms with nonprofit clients.
We cover bookkeeping, fund tracking and the preparation of financial data and schedules. We do not prepare Form 990 or other tax filings, and we do not submit reports to funders. Your organisation or its accountant reviews and submits them.
Why the tracking is different#
In a business, one profit and loss statement may be enough. A nonprofit with several grants needs several views of the same books: by grant, by fund, by program, and in total. Each grant agreement says what the money is for and what the organisation must report. The accounting records need to keep that information attached to each transaction from the start. Trying to rebuild it at report time is slow and error-prone.
Our experience in this area is Global Fund grant work at the William J. Clinton Foundation (India), CHAI.
Restricted and unrestricted tracking#
The first design decision is how to separate money that comes with conditions from money that does not.
- Unrestricted funds can be used for the organisation's general purposes.
- Restricted funds come with conditions from the donor or grant agreement, such as a purpose or a period.
In QuickBooks Online, we use classes or tags to carry the grant or fund on each transaction. Income and expenses both get the same label, so a report by class shows what came in and what went out for that grant. The chart of accounts is kept consistent so that restricted and unrestricted balances can be reported separately.
Two points to settle with the organisation before setup:
- Whether classes or tags suit the file better. This depends on how the file is already organised and what the organisation wants to report.
- What the list of grants and funds should look like, and who approves a new one.
How a given receipt is classified as restricted or unrestricted depends on the grant agreement and the organisation's policy. We do not decide that. We record it as you instruct and flag receipts whose terms are unclear.
Grant-wise income and expense#
Once each transaction carries its grant, two reports follow:
- Income by grant. Grant receipts, donor receipts and any other income, shown against the grant they belong to.
- Expense by grant. Spending on each grant, by account, so the funder's categories can be matched to the ledger.
The coding is done as transactions are recorded. The working rule is that no transaction leaves a period without a grant or fund label, or a note saying why not. Unlabelled items go on a question list.
Shared costs allocated on an agreed basis#
Some costs serve more than one grant: rent, shared staff time, utilities. These are recorded once and then allocated. The basis of allocation is agreed with you before we apply it, and it is written down. The agreement may also need to fit what the funder allows, so we follow the basis you give us and do not choose one.
An illustrative worked example#
All figures are illustrative round numbers.
A nonprofit pays office rent of 10,000 for the month. It has two grants and some general activity. The agreed basis is the share of staff time recorded for the month.
| Class | Staff time | Share | Allocated rent |
|---|---|---|---|
| Grant A | 60 hours | 50% | 5,000 |
| Grant B | 36 hours | 30% | 3,000 |
| Unrestricted / general | 24 hours | 20% | 2,000 |
| Total | 120 hours | 100% | 10,000 |
The rent is recorded once, then split by journal entry to the three classes. The total remains 10,000, so the profit and loss in total does not change. Only its split by class does. The journal entry carries a note saying which basis and which month it uses.
If next month's staff time differs, the percentages differ. We keep the schedule that produced each month's split, so you can show how each figure was reached. If the funder requires a different basis for one grant, the schedule changes for that grant and the others are recalculated.
Budget versus actual by grant#
A grant has a budget, set when it was awarded. We load the approved budget for each grant into QuickBooks Online, or hold it in a schedule alongside, depending on the file. The report then compares actual spending with budget, line by line.
What we look for when preparing it:
- Whether actual figures include the allocated shared costs, so that the comparison is complete.
- Lines where spending is running ahead of or behind budget, flagged with a note.
- Timing: whether an invoice is recorded in the right month, so a variance is real and not a cut-off issue.
Whether to ask a funder to amend a budget is your decision. Our part is to make variances visible early enough for that decision.
Supporting schedules for donor reports#
Funders ask for reports in their own formats. We do not fill in or submit those forms. We prepare the financial data behind them:
- Income and expense by grant for the reporting period
- The shared cost allocation schedules
- Budget versus actual by grant
- Lists of transactions that support a reported line
Because the data comes from the same ledger, the schedules agree with the financial statements. Your finance lead or accountant reviews them and completes the funder's report.
Releasing restrictions, as a concept#
When a restricted gift is used for its purpose, or a time condition passes, the restriction on that amount is said to be released. In the books, the amount moves from the restricted balance to the unrestricted side in step with the spending. How and when that is recorded depends on the nature of the gift and the organisation's policy, and it is a judgement for you and your accountant. We can record the entries on your instruction and keep a schedule of the restricted balance by grant, showing what has been received, what has been used and what remains.
How review works#
The work is reviewed by a Chartered Accountant before it is returned. Your reviewer can then check the points below.
| Check | What to look at |
|---|---|
| Labels | Every transaction carries a grant or fund, or has a note |
| Grant totals | Income and expense by grant add up to the whole |
| Allocations | Each month's split has a schedule and an agreed basis |
| Restricted balances | Received less used equals the remaining balance, by grant |
| Budget versus actual | Variances have a note |
| Funder terms | Questions about restrictions are on the open list |
Why this work is hard to staff#
Two sets of US rules shape how a nonprofit ledger is kept. Under FASB ASU 2016-14 (August 2016), net assets are presented in two classes, with donor restrictions and without donor restrictions, rather than the three classes required before. Every gift therefore has to be coded by whether the donor attached conditions, and that coding has to hold through later releases. Federal awards add a second layer: under 2 CFR 200.501(a) (eCFR text dated 1 October 2026), a non-Federal entity expending $1,000,000 or more in Federal awards in its fiscal year must have a single or program-specific audit. The earlier figure was $750,000. Rules and thresholds change; confirm the current position with the client's preparer or auditor.
A bookkeeper who has not worked with grant ledgers can easily book a restricted receipt as general income, and a firm weighing outside help should ask how that is prevented. Whether an audit is required, and how the rules apply to a given organisation, stays with the firm, the auditor or the client's preparer; the bookkeeping records the data they need.
What can be handed over, and what stays with you#
Can be handed over
- Setting up classes or tags for grants and funds
- Coding income and expense to grants
- Shared cost allocation on the basis you agree
- Reconciliations and month-end close
- Budget versus actual by grant
- Supporting schedules for donor reports
Stays with you
- Interpreting grant agreements and funder terms
- The choice of allocation basis, and funder approval of it
- Decisions on releasing restrictions
- Completing and submitting funder reports
- Tax filings, including Form 990
What to send#
- Access to the QuickBooks Online file
- The list of grants and funds, with the reporting needs of each
- Grant budgets and the reporting periods
- Your allocation basis, in writing
- Bank and card statements, and any donor receipt records
What comes back#
- Income and expense by grant or fund
- Restricted and unrestricted balance summaries
- Budget versus actual by grant
- Allocation schedules
- Supporting schedules for donor reports
- A written summary of adjustments and an open-items list
To start, send one file. We review it and send an estimate within 48 hours, with a capped number of hours. Our wider approach is in the overview for accounting firms, and the sector details are on our industries page and the nonprofit grant accounting service page. If the file is behind, see the cleanup guide first.
Frequently asked questions#
Do you prepare Form 990? No. Tax return preparation and filing are not offered.
Do you submit reports to funders? No. We prepare financial data and supporting schedules. Your organisation or accountant reviews and submits them.
Which software do you work in? QuickBooks Online.
Who decides how shared costs are split? You do. We apply the basis you agree and keep a schedule for each period.
