Best Tips for Tracking Donations in QuickBooks
Money fuels the mission of every non-profit organization. Just like any other business, nonprofits need money coming in to cover operating costs, pay employees, fund their programs, and so forth. Nonprofits must have an effective system for recording the donations received from their donors. QuickBooks is often a perfect tool for many nonprofits to deal with this very dilemma. With QuickBooks, it is simple to track all the money coming in and out of your organization. Below are some of our best tips nonprofits can use for tracking donations with QuickBooks. For purposes of this blog post, we will be looking at donation tracking with the QuickBooks Online platform.
1. Set company up as a nonprofit
When you first start your QuickBooks Online, you are prompted to select an organization type. It is an important first step that you select “Nonprofit organization” from this list. By telling QuickBooks you are a nonprofit, they will automatically tailor their software to meet the unique needs that your organization faces. If you can’t remember what business type you selected, you can access this setting doing the following:
- Click on the gear icon in the top right of your screen
- Under the “Your Company” heading, select “Account and settings”
- From here, you can click on the “Advanced” tab on the left side of your screen.
- The second section that pops up on this screen is called “Company type” From here you can click the pencil icon on the left and edit your company type to say “Nonprofit organization (Form 990)” if needed.
2. Record donations using one of several methods
When a donor gives to your organization, there are several options for how to categorize the donations in QuickBooks:
- Sales Receipt – a sales receipt is used when a customer pays you on the spot for goods or services. To record a sales receipt, it is necessary to create an item that was “sold” to the “customer”. Most nonprofits can setup just a single item called “donations” and use this on all their sales receipts.
- Invoice/Pledge – an invoice is used when a customer agrees to pay later. In the context of a nonprofit, this can be useful when a donor makes a pledge. QuickBooks can even memorize recurring monthly pledges so they are generated each month to remind the donor.
- Deposits – If you don’t want to use a sales receipt or invoice, you can also record income directly in a deposit. Doing this bypasses the “sale” and just records income directly in the bank account.
3. Use classes to track restricted donations
Donors oftentimes will give money to a nonprofit that is restricted for a certain purpose or program. The class feature in QuickBooks takes the headache out of tracking these donations. To use classes, you must first enable it in your settings by doing the following:
- Click on the gear icon in the top right of your screen
- Under the “Your Company” heading, select “Account and settings”
- From here, you can click on the “Advanced” tab on the left side of your screen.
- The fourth section that pops up on this screen is called “Categories”. From here you can toggle the on/off switch for tracking locations. We also recommend checking the box for a warning when a transaction isn’t assigned a class.
After classes are turned on, you can then create a class for each of your programs or departments. Many nonprofits use classes such as “General & Administrative”, “Programs”, “Fundraising”, etc, but classes can be changed to fit your specific nonprofit. Transactions recorded are then assigned to a class. This will allow for financial statements to be generated by each class in your nonprofit. Nonprofits can view income and expenses for each class to ensure that restricted funds are used for the intended purpose.
4. Create year-end donation letters using this workaround
When nonprofits receive donations, donors will be looking for some form of receipt in order to claim their donation as a tax write-off. It is therefore imperative that you track who the donations come from. This tracking is easy if you setup each of your donors as a customer in your QuickBooks file. Each donation should have a donor name unless the donation was anonymous. When January rolls around and donation letters need to go out, the data will be readily available in QuickBooks to extract. While there is not a formal donation letter feature in QuickBooks, using a Sales by Donor Detail should get you the information you need. To create this report, follow these steps:
- Click Reports on the left panel.
- Type Sales by Customer Detail on the search box.
- Click the Customize button in the upper right-hand corner.
- Maximize the Rows/Columns section, and then click the Change columns link.
- Check the box for Donors.
- Click Run report.
If this workaround doesn’t work, there are also several donation apps available that integrate with QuickBooks Online. An application such as Donor Receipts may be the perfect solution for your donor letters that works perfectly with QuickBooks Online.
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