This is the final article of a four-article series on configuring QuickBooks specifically for nonprofit use.
In my
first article, I mentioned that the very first step in configuring
QuickBooks is to have a QuickBooks implementation meeting. I recommended using a questionnaire to facilitate the meeting and act as a centerpiece for determining key stakeholders and ultimate goals for using QuickBooks effectively at your organization.
My
second article addressed setting up the chart of accounts in a nonprofit environment. The
third article dealt with setting up and using the Customer/Jobs and Classes utilities in QuickBooks to assist nonprofit organizations in reporting by funding source and program.
In this article, we'll cover the final two steps — coding transactions using the QuickBooks Customer/Jobs and Classes utilities and creating financial reports. Please
join the discussion in the forums to share your tips on using QuickBooks at your organization as well!
Coding Transactions Using the QuickBooks Customer/Jobs and Classes Utilities
At this point, if you followed my suggested steps, you have accomplished the following.
- You've collaborated with all staff and written an
implementation plan defining funding sources and programs.
- You've set up the
chart of accounts in QuickBooks.
- You've set up the
Customer/Jobs utility in QuickBooks.
- You've set up the
Classes utility in QuickBooks.
Now we are ready to begin to use the chart of accounts, Customer/Jobs (funding sources), and Classes (programs) to code each transaction that comes into the QuickBooks database. Remember, QuickBooks is simply a relational database, and its ability to pull out relevant information into reports is entirely dependent on how you code each transaction entering the database. The chart of accounts, Customer/Jobs utility, and Classes utility are simply database flags that are appended to each transaction.
By correctly and consistently appending each transaction with each of these database flags, QuickBooks can easily and quickly find the information you ask it for. And it can create relevant reports by account, funding source, and program.
Staying Connected
One very important note before we continue. The interface between the accounting department (often only one person) and the rest of the staff does not end here; it actually only begins here. It is absolutely critical that the accountant and all staff continue to collaborate and discuss lost grants, new grants, and changes in grants. Plus they should discuss reporting requirements of grants, allowable and non-allowable costs of grants, and anything that impacts the accounting system or requires financial reporting.
The collaborative exercise of creating a written implementation plan with all stakeholders should have given the non-accounting staff insight into the accounting staff's role and needs. The non-accounting staff should understand and respect the fact that the accountant needs to be brought in and communicated with regarding all new grants and proposals.
Simply said, the accountant should not find out about a new grant by receiving a check in the mail from the XYZ Foundation. That's because at that point it is difficult to create the Customer/Jobs, Classes, and possibly accounts that need to be used or set up for the new grant. And if costs have already been incurred on the grant, the accountant must now retroactively go back and reassign coding to the grant.
Your accountant should be aware at all times of all current, pending, and possible future funding sources. So keep communicating, or you will have to watch as your poor accountant runs out of the building yelling and screaming and pulling their hair out! Accountants like order, not surprises, and they like to think that they have at least some control over their environment. That's why they are sometimes called controllers. It's more of a psychological description than a financial title in reality!
Assigning Transactions
Now that you have your database flags set up (chart of accounts, Customer/Jobs, and Classes), you are ready to assign each transaction with a funding source, program, and account. Remember that the responsibility for assigning these database flags should rest with the budget manager and not with the accountant.
Because of this, I recommend using a cover sheet for each check request or bill that will be entered into the QuickBooks system. (See
this PDF for a sample of a transaction cover sheet. I want to thank Vonda Paige, executive director of the
Tavis Smiley Foundation, for allowing me to share her organization's transaction cover sheet with TechSoup's readers.)
The use of a transaction cover sheet is an effective means of communication. It will strengthen your organization's internal controls because it will show the approval signature of the person responsible for coding and the coding to each funding source and program.
If the accountant is forced to assign coding to each transaction because the budget manager or program manager has not done so, that action may lead to problems. The accountant may put themselves in an unenviable position of later trying to explain to a budget manager why their program is over or under budget. But it should be the budget or program manager that is doing the explaining because they are the one who should have assigned the coding. (And rightfully so, because that manager should be much more familiar with their program's day-to-day operations than the accountant.)
QuickBooks allows the user to assign Customer/Jobs, Classes, and accounts in each entry screen used to enter a bill, write a check, enter an invoice, enter a deposit, or make a journal entry. View a
short screencast that explains this concept. This short screencast will show you how you can assign the three major pieces of information — funding source, program, and account — to each and every transaction entering your QuickBooks database.
It takes you through coding for entering bills, writing checks, entering invoices, making deposits, and creating a journal entry. In each QuickBooks screen for each of these types of transactions, QuickBooks allows the user the opportunity to assign the funding source, program, and account.
If the QuickBooks user accurately and consistently assigns these database flags to each transaction, QuickBooks can use standard reports within the software to report by funding source, program, and account. And that functionality leads us to the final step and subject of this article in this series: creating financial reports for a nonprofit.
Creating Financial Reports in QuickBooks for a Nonprofit Organization
The real keys to useful reporting in QuickBooks are
- Proper implementation and setup of QuickBooks based upon a shared vision of your nonprofit by all stakeholders
- Communication between accounting and non-accounting staff
- Proper, accurate, and consistent coding of all transactions that enter the QuickBooks database
- Review of financial reports on at least a monthly basis by all pertinent staff
Reading and understanding financial reports is not a talent or skill reserved for bookkeepers, accountants, or CPAs. If, after setting up QuickBooks using the steps in this series, you need these people to interpret these reports to you or your organization's non-financial staff, there's probably something wrong. One or more of these things is likely happening:
- There is something wrong with the organization's QuickBooks implementation and setup (chart of accounts, Classes, Customer/Jobs, and so on).
- There is a failure to adequately communicate among your financial and non-financial staff members.
- There is not proper, accurate, and consistent coding of all financial transactions.
- There is not a review of financial reports on a frequency that will allow for the correction of transactions that have been improperly coded.
We as accountants do our best to create reports that management can easily read and understand. If financial and non-financial management have participated in building the infrastructure from which these reports are derived, they should be able to make sense of all financial reports the system produces. So if you feel that a particular report is not quite right, follow your instincts and backtrack to see where the problem may reside.
Perhaps program managers are not adequately communicating the coding of expenditures by funding source or program to the accountant. Or perhaps your accountant is assigning these costs themselves without asking for the allocation from pertinent managers. Using the
sample transaction cover sheet (PDF) is a very good best practice and audit tool to give you a glimpse of where the breakdown may be occurring.
If your QuickBooks system is set up correctly and you have put procedures in place to properly code financial transactions, you can start generating useful reports. Use basic, standard profit and loss reports in QuickBooks to produce very useful information as follows.
- Profit & Loss Standard (Used to report on the nonprofit on a high level "combined basis")
- Profit & Loss by Class (program)
- Profit & Loss by Job (funding source)
- Budget Versus Actual (combined basis)
- Budget Versus Actual by Class (program)
- Budget Versus Actual by Job (job)
All of these reports are standard QuickBooks reports. The only modification you need to make to use these reports is to use the filter tab to select which funding source or program on which you wish to report. You then set the period for which you wish to report. View a
short video that explains reporting using the concepts in this article.
I have truly been amazed at the versatility and capabilities of QuickBooks, especially in the nonprofit environment. I have to keep reminding myself that this software is (without exaggeration)
thousands of dollars less expensive than the industry-specific fund accounting software on the market today.
Make no mistake — QuickBooks is NOT a fund accounting software and may not be appropriate for all nonprofits; however, it can be easily set up to meet the needs of most small to moderate-sized nonprofits. Eligible nonprofits can
request donated QuickBooks Premier Editions through TechSoup.
I sincerely hope that this article series has at least
sparked some discussion among nonprofits using QuickBooks and assisted them in using the software more effectively and efficiently. I know that some may agree or disagree with my suggestions in this article — and certainly my suggestions may not be appropriate for all nonprofits. But I wanted to share what I have seen work in my small smattering of the nonprofit community. Please share your experiences using QuickBooks in
TechSoup's community forums.
I am honored and feel blessed to work in the nonprofit industry. The people I have had the privilege to come to know have truly inspired me and taught me that it is much more than accounting that makes a nonprofit tick. They remind me every day (as I get older and more cynical) that we can change the world for the better! I wish you and your nonprofits the very best in achieving your missions.
I hope these articles have helped you. Below are some other resources (including some with other suggested methodologies) to which you can also refer.
Resources for Setting Up QuickBooks at Your Nonprofit
Mark McCallick, CPA, CGMA is a professor of accounting at Santa Ana College, where he created a QuickBooks course to prepare students to successfully pass the Intuit QuickBooks Certified User exam. He has a B.S. in accounting from Loyola Marymount University and began his career as a CPA at Ernst & Young. Prior to becoming a professor, he ran a CPA firm where he served nonprofit organizations in the areas of software implementation, audit, and tax for over 25 years. Mr. McCallick is a Certified QuickBooks ProAdvisor. These articles were updated by Mr. McCallick in November 2017 for our readers.
