How to Prepare for an Audit in Three Easy Steps

How to Prepare for an Audit in Three Easy Steps

You know you need an audit — but do you know how to prepare for it? From determining which type of audit you need to choosing the right firm, you need to follow specific steps to ensure you reach your goals.

What Is an Audit?

An audit is an in-depth examination and objective evaluation of an organization’s financial records to determine whether they reflect fair, accurate information. Audits can be internal or external.

In-house employees carry out internal audits, while certified public accounting (CPA) firms often handle external audits and document their findings in detailed audit reports. IRS audits also represent external examinations conducted by the organization’s revenue agents.

Keep the following steps in mind as you plan for an audit.

1. Determine the Audit You Need 

You will first need to decide what type of audit is necessary for your business. For example, a construction company would likely need a bonding or licensing audit.

Consider whether you need a balance sheet audit or a full audit. 

Balance sheet audits examine your business’s assets, liabilities and equity in detail and compare them to previous periods. Auditors will investigate the reasons behind changes and verify the information’s accuracy and compliance with generally accepted accounting principles.

Full audits go a step beyond the balance sheet. During a full audit, your CPA will thoroughly dig into your financial picture. They will confirm income and its sources and verify operating expenses, sometimes in line-item detail. For example, an auditor may match accounts payable claims with the actual invoices your business received. After conducting a full audit, the CPA will issue an audit report stating their opinion on the information’s accuracy. These reports help boost confidence in a company’s financial condition.

Single audits are another option, especially if your organization is a nonprofit receiving government funding. During a single audit, the CPA has a narrower scope — the auditor focuses on accounting for a specific government award. They will investigate broader financial statements as part of their review to determine precisely how your organization managed the money you received from a government program. Its purpose is to confirm you followed any associated rules or restrictions for the money’s use.

2. Choose a Certified Public Account (CPA) Firm

Now that you know what type of audit your company requires, you should research CPA firms. It’s critical to find a reliable and trustworthy option to ensure you are getting the correct service from trusted professionals. Follow these steps to choose the best firm for your business:

  • Ask about their specialty: In many cases, you can find a firm specializing in your industry, increasing the CPA’s likelihood of conducting a dependable audit.
  • Check their history: CPAs receive licenses from their state, so you can research the accountancy board’s database. Doing so allows you to view essential information, including any disciplinary actions.
  • Verify their memberships: Many CPAs belong to industry organizations, like the American Institute of Certified Public Accountants. These organizations promote integrity and ongoing education, so membership is a sign of your CPA’s values.
  • Confirm their experience: While all CPAs have passed the required exams, there’s a benefit to working with an audit-experienced firm. Those who’ve served the industry longer generally have more in-depth knowledge of the process to make audits smoother.
  • Check their fees: CPA firms may work on different fee structures based on the hours or complexity involved. Ensure you understand payment arrangements so you can compare costs between CPAs accurately.
  • Confirm audit representation: If an IRS audit happens, you’ll likely want a skilled CPA in your corner. Reputable firms should offer audit defense to help represent you in dealings with the IRS.
  • Ask people you trust: Referrals from friends, family and business advisors can help you identify the ideal CPA for your audit. Sometimes, they can also prevent you from engaging the wrong one.

3. Start Preparing for a Financial Statement Audit

The last step is to prepare for the audit. Communication is crucial, especially for loan covenant or federal spending requirement compliance. Make sure you know the best way to communicate with your CPA firm. That way, you can convey important information, such as when your audit’s deadline is, to ensure the firm conducts it correctly.

It’s also essential to start gathering important documents and plan for the time it takes to work with your auditor. That way, it’s easier and faster for them to complete your audit because you are ready to assist as necessary.

The documents needed for an audit will vary based on the audit type and scope and the structure of your business. Generally, you should expect to provide supporting evidence for your financial reporting. Tasks will likely include:

  • Gathering expense evidence: Have receipts, paid tax statements and other evidence of business expenses available for your auditor. The auditor will align these with any allowable deductions to verify their existence and eligibility.
  • Presenting income evidence: Ensure you have bank statements, deposit receipts and customer invoice copies to give your auditor. They’ll be able to confirm revenue claims and reconcile receipts with journal entries faster.
  • Providing access to past third-party opinions and confirmations: Allow your auditor to review any previous objective opinions and audit reports. They can use these as supplemental resources to form a more comprehensive audit trail.

For privately held corporations, auditors may request additional documents that speak to financial health. These include:

  • Cap tables representing your company’s ownership allocations to confirm value, expenses and the owner’s equity entry on your balance sheet.
  • Form 409A to set forth the fair market value of outstanding stock and ensure you’ve valued equity-based compensation accurately.
  • Other stock-based compensation reports detailing your valuation calculations.
Contact Marshall Jones Today for Audit and Assurance Services

Contact Marshall Jones Today for Audit and Assurance Services

If you follow these three steps, your audit will run smoothly without requiring extra effort. When you need to choose a reliable firm for an audit at your business, come to Marshall Jones.

Our audit and assurance services help gather financial records and show your management team the next steps. Whether you are trying to maintain or grow your company, our team helps you with audit and assurance services to satisfy government authorities and other entities that require them.

We use a risk-based audit approach, provide valuable recommendations and report our findings to the necessary parties. We have over 30 years of experience, and our services help you save by not requiring you to hire an in-house CPA.

Please contact the Marshall Jones team today for audit and assurance services!

accountants performing an audit

What Are Common Audit Adjustments and How Can I Avoid Them?

Audit adjustments can significantly impact your organization’s financial statements. It’s essential to evaluate their regulatory compliance effects and determine potential internal control deficiencies that may prevent you from detecting misstatements.

Though many audit adjustments are common, there are various measures you can take to avoid these corrections and ultimately improve your internal operations.

What Are Audit Adjustments?

Audit adjustments are proposed corrections that outside auditors make for your company’s general ledger. These corrections come from financial misstatements, errors or items discovered during auditing procedures that may require revision or reclassification to different accounts. Your business must correct these issues before your auditors will sign off on the audit report. 

Common Audit Adjustments

Companies run into many common audit adjustments depending on their financial activities. They can range from verifying financial reporting accuracy to adjusting incorrectly classified accounts. 

Some frequently occurring audit adjustments include:

  • Prepaid expenses: Assets that are paid for and used gradually, such as office supplies. 
  • Depreciation: The process of allocating or distributing asset costs over the asset’s useful life.
  • Net assets: Assets and contributions with donor restrictions. 
  • Accrued revenues: Revenue earned during one accounting period that isn’t received or recorded until a later period.
  • Straight-line rent: The total liability under a rental agreement that should be charged over the contract term on an even, periodic basis. 
  • Accrued expenses: Expenses that occurred in one accounting period but will be paid during a later period.

How to Avoid Audit Adjustments

Though audit adjustments may seem unpreventable, there are ways to elude them. You can avoid even the most common audit adjustments by taking the following precautions:

  • Perform self-audits: Frequent misstatements indicate that your company’s financial processes require remediation. Consider self-auditing any significant transactions, receipts, disbursements and potential variances to catch errors before they occur.
  • Review financial statements: Management should regularly review your company’s general ledger, cash receipts, cash disbursement journals and subsidiary ledgers to confirm that these balances are reconciled accurately. Frequent reviews are evidence of effective internal controls and timely corrections.
  • Monitor nonroutine transactions: It be can be easy for nonroutine transactions to slip through the cracks, as these periodic activities are not typically part of your routine flow of transactions. Consider reviewing these transactions regularly to account for them.

Schedule Audit and Assuarnaces Services at Marshall Jones

You can avoid audit adjustments with the help of the audit and assurance experts at Marshall Jones. We’ve spent over 35 years providing excellent client service to customers across Atlanta with exceptional technical competency and complete integrity.

Contact us for more information on the audit process and our services today!

hinking financial advisor businessman working in office.

What Do I Do With My Audit Report Once Received?

Audit reports are written assessments of whether a company’s financial statements comply with generally accepted accounting principles (GAAP) and are free of incorrect information. Auditors’ findings provide management, shareholders and potential investors with valuable financial information and insights on your business’s financial position. 

If you’re new to the auditing process, you may wonder what to do after receiving your audit report. You can take several courses of action, depending on the auditors’ findings and whether you agree with them.

What Happens After You Receive Your Audit Report?

An audit report includes a written letter attached to your company’s financial statements detailing the auditors’ opinions of your GAAP compliance. It states the auditors’ responsibility, the accounting principles that guided the report and the auditors’ opinions.

After you receive your company’s audit report, you can assess the auditors’ findings and determine if you agree or disagree with their assessments.

What to Do if You Agree With the Auditors’ Findings

If you agree with the conclusions of the audit report, your next steps are fairly simple. To proceed, you’ll state that you agree with the auditors’ findings in the management response and detail the steps you’ll take to resolve any operational deficiencies identified in the report.

What to Do if You Disagree With the Conclusions on an Audit Report

You can oppose the auditor’s conclusions by stating your beliefs in the audit response and reasoning to back up your statement. If you disagree with the report, your auditors will respond with further explanation to rebut your assertion, which may help your case and elicit further investigation.

All audits with recommendations or concerns are subject to a post-audit review to verify that your management address the suggestions outlined in the auditor’s report.

After Receiving the Final Audit Report

Once your auditor issues a final audit report, management must evaluate the audit’s quality, taking into account the auditor’s communication, performance, professionalism and recommendations. To assess these areas, you can verify that the auditor tested relevant aspects of your business and industry. If you’re unsatisfied with your auditor, you can submit a proposal requesting that you get a new one.

Book Audit and Assurance Services at Marshall Jones

If you require assistance with your next audit, consider audit and assurance services from the Certified Public Accountants and Advisors at Marshall Jones. We conduct our accounting services with humility and integrity in mind.

Contact us to learn more about our services today!

happy employees

Does an Employer Benefit From a 401(k) Matching Plan?

Hiring and retaining talented candidates can be difficult in today’s marketplace. If the candidate you’ve offered the position to is juggling multiple offers, their selection might boil down to one thing — the company’s benefits packages. Your ideal candidate is most likely to choose the company with the most competitive benefits package. 

What Are the Benefits of Having a 401(k) Package for Your Employees?

Offering a 401(k) benefits package isn’t mandatory as an employer, but there are several incentives to provide one:

  • Attract qualified talent: Set yourself apart from the competition by offering talented candidates a comprehensive benefits package.
  • High retention: Show your employees they’re valued by matching their investments in their future with a 401(k).
  • Long-term company success: Your company’s success is directly tied to the talents, qualifications and capabilities of your workforce. 

To ensure you offer the best packages your company can, we recommend you annually review your benefits packages for new and existing employees. 

Does An Employer Benefit From a 401(k) Matching Plan?

There are several benefits of a 401(k) plan — for you and your employees. For example, you can both benefit from tax breaks with 401(k) plans. Money contributed to a 401(k) is tax-deductible and accumulates on a tax-deferred basis, subsequently lowering both of your tax brackets.

If your employee’s salary is $80,000 and they contribute $18,000 to their 401(k), they are lowering their tax bracket because their salary then becomes $62,000 when you deduct the $18,000. 

Employers benefit from a matching plan, too. The money you contribute to their 401(k) is also pre-tax, lowering your tax bracket. Remember to contribute to your own 401(k) because this allows for salary deferral and profit-sharing contributions. 

What Are the Benefits of Offering A Retirement Plan and 401(k) to Your Employees?

When you match your employee’s contributions to their 401(k), they are accepting free money — which is an incredible incentive, especially if your contributions outdo another employer’s. Even better, the money you and your employee invest into a 401(k) generates more savings for both of you in the long term. 

You can provide salary-based, company-profit or dollar-for-dollar amount matching contributions depending on your preference:

  • Dollar-for-dollar: With a dollar-for-dollar matching contribution, you match their contribution down to the dollar — so if they contribute $5,500 annually, you will, too.
  • Percentage-based: Rather than contributing 100% of what your employee puts into their 401(k), you can contribute a certain percentage. For example, it’s common to match 50% of their input. If your employee contributes $5,500, you contribute $2,750. 

There is a maximum contribution limit to a 401(k) between an employee and employer. According to the IRS, as of 2021, the maximum contribution amount is $58,000. 

Contact Marshall Jones

Contact Our Dedicated Professionals for Your Accounting Services Today! 

At Marshall Jones, we are committed to providing quality tax advisory services for corporations and individuals. Reach out to our certified public accountants and advisors and benefit from our industry expertise. We have over 30 years of experience in tax preparation services. 

Reach out to us online today to get started! 

calculating business expenses

What Business Expenses Are Tax Deductible?

Whether you own a salon or a manufacturing company, running your business will come with operational expenses. If your business exists and operates to make a profit, you are eligible for business tax deductions. 

What Are Fixed and Variable Business Expenses?

Business expenses can be variable or fixed, meaning they can be one-time, occasional or constant. Variable business expenses can include travel or startup costs, while a fixed business expense is constant, like rent or mortgage payments.

Each industry will have specific deduction standards. Generally, you only deduct what’s considered necessary for your business. Qualifications vary depending on your industry and business. 

What Are Ordinary and Necessary Business Expenses? 

The Internal Revenue Service — the IRS — determines ordinary expenses as common to the industry you work in. Necessary expenses are defined as expenses considered appropriate for your trade or industry or a standard cost associated with running a business, no matter the type of business. 

For example, ordinary business expenses for a salon manager could include sinks, hair products and washers and dryers to clean towels. However, a washer and dryer would not be considered essential for an accountant because it’s not required for daily operation and it isn’t integral to providing their services as an accountant. 

What Are Some Ordinary and Necessary Small Business Tax Deductions? 

Small business tax deductions can include: 

  • Rent or mortgage payments.
  • Office equipment.
  • Payroll costs (wages, benefits, and taxes).
  • Utilities.
  • Taxes.
  • Interest payments.
  • Business fees (license, permit, subscription). 
  • Maintenance and repairs.
  • Legal or professional fees.

What Are Some Other Business Expense Deductions to Consider?

There are other tax deductions associated with your business, but there are requirements to meet each qualification:

  • Gifts: You can deduct gifts from your taxes if your gift does not exceed $25. If you send a bottle of wine worth $100 to a client, you can only deduct $25 from that gift. You can also deduct promotional gifts like pens and coffee mugs up to $4 per item if it bears your business name. If a client takes home a pen with your business name, you can deduct it! 
  • Meals and entertainment: Due to the Tax Cuts and Jobs Act of 2018, you can deduct 50% of your business meals. However, a business representative must be present and you must be conducting business. The IRS should not consider the meal extravagant, which includes any restaurants or meals not typical of any ordinary day.
  • Travel expenses: You can deduct automobile travel costs or the standard mileage rate, which is 58.5 cents per mile in 2022 — but you cannot do both. If you do deduct the actual expenses, you can deduct 50% of your depreciation, auto loan interest, fuel, maintenance, insurance and registration. Otherwise, we advise you to track your mileage in case the IRS audits you. 
  • Home office expenses: You can choose to deduct $5 of each square foot of your home office, but it must be a dedicated office space. 

Contact Marshall Jones Certified Public Accountants And Advisors Today

We can help you determine what business expenses are ordinary and necessary. Contact us today and our dedicated team of professionals will advise and guide you in your small business tax preparation! 

hinking financial advisor businessman working in office.

What Is the Federal Gift Tax? 

Just as the federal government collects taxes on your income, it also collects taxes on large sums of money gifted to people, organizations and churches. However, more often than not, the average taxpayer won’t need to file a gift tax return due to the large annual gifting amounts allotted. As a result, many gifts aren’t subject to taxation. 

What Is the Annual Exclusion Amount for Gift-Giving?

In 2021, the federal government allotted each individual — and their spouse separately — a lifetime exclusion amount of up to $11.58 million. The combined lifetime gifting exclusion amounts to a total of $23.16 million for one couple. 

Do I Need to File a Federal Gift Tax Return? 

Even if your gifting amount does not exceed $11.58 million, you may need to file a gift tax return. As of 2021, the annual federal gift tax exclusion enables you to gift up to $15,000 to as many people as you’d like without the amount affecting your $11.58 million or requiring you to file a federal return. This amount is subject to change year-to-year due to inflation. However, any amount you gift to an individual exceeding $15,000 will count toward your $11.58 million lifetime gift tax exemption. 

For example, if you gift $20,000 to a family member, the additional $5,000 will count toward your $11.58 lifetime gift tax exemption. You will need to file a federal return because of the $15,000 annual gifting limit.

Likewise, if you paid another $20,000 to a different family member, $5,000 of that amount will count toward your lifetime gift tax amount. If you gifted both amounts in the same year, $10,000 of your combined gift amount would count toward your lifetime amount. 

Estate Planning Using the Gift Tax 

Gift taxes and estate taxes are connected. As of 2020, you have an $11.28 million federal estate exemption. You can leave up to $11.28 million in your estate before your beneficiary will owe any federal estate taxes.

If you’re married, your spouse is entitled to an $11.58 million estate exemption amount. This means your spouse will only owe federal estate taxes on inheritances exceeding $11.58 million. 

To sum up, each individual receives a federal, lifetime exemption amount of $11.58 million. Gift amounts exceeding $15,000 per person annually will require you to file a federal gift tax return. As a result, annual gift giving of less than $15,000 per year becomes a great approach to estate planning. This trickled gift-giving approach ensures you aren’t cutting into your beneficiary’s estate exemption amount, reducing your beneficiary’s taxable estate.

Get Professional Tax Advice From the Certified Public Accountants and Advisors at Marshall Jones

Collectively, our certified public accountants and advisors at Marshall Jones have more than 35 years of experience in professional accounting, bookkeeping and tax planning and preparation. Our attentive accountants and advisors can provide expert advice while answering any questions you might have. 

Consult with us today for your tax preparation and estate planning needs. 

General Contractor

Why Does My General Contractors License Require an Audit

In the application for your general contractor’s license, there are several requirements that must be met. Among the age, education, and experience qualifications, there is one specific requirement that often comes as a surprise to many individuals. In the state of Georgia, the State Licensing Board of Residential and General contractors requires that an audit has to be completed. With your application, you must attach a CPA reference letter that indicates that you have a minimum net worth of $150,000. 

Audits Help Insurance Companies Determine Your Insurance Premiums

This financial responsibility is important because it provides useful information for insurance companies to accurately determine the costs of your general contractor liability insurance, workers compensation, automobile, and other coverage policies. Since a CPA is performing an audit on your business operations and worth, the insurance companies are able to more accurately calculate your policy premiums and insurance rates based on the audited payroll, sales, and cost numbers. 

Understanding the Importance of an Audit

Understanding the importance of an audit for your general contractor’s license is essential to your business. Having an auditor confirm the costs incurred improves the accuracy of the cost certification in the application, and if costs are adequately separated into relevant types and organized by vendors, then this further contributes to the reliability of the application. 

Contact Marshall Jones


An audit by the certified public accountants and advisors at Marshall Jones unlocks a mountain of financial data. With over 30 years of experience, our team works to develop accurate and up-to-date financial analysis and information you can use. Construction companies face unique accounting challenges, and we help overcome them. Contact us to get started.

What a Board Should Look for in Financial Statements

What a Board Should Look for in Financial Statements

Reviewing financial statements is a critical task board members may undertake to evaluate an organization’s compliance and budgetary status. To best identify potential risks and promote optimal financial management, it’s wise to pay attention to some key considerations. Follow these best practices for thoughtful, accurate evaluations of organizations’ financial situations.

Red Flags in Financial Statement Analysis

When an organization’s statements are under review, analysts should watch for a few markers of concern. Noticing potential areas for improvement can help you proactively address potential issues and manage the proper solutions promptly.

Throughout your organization’s evaluation, look out for red flag warning signs such as:

  • No liquidity reserve policy: While 33% of nonprofits don’t have a strategy to navigate recession, ensuring your organization develops the resources and plans necessary to recover is critical.
  • Negative cash flows from operations: Watch for negative cash flows — 50% of nonprofits have operating reserves for less than a month, and it’s vital to build up those resources.
  • Internal borrowing of donor-restricted funds: Organizations should maintain sufficient financial resources to support net assets with donor restrictions.
  • Negative or insufficient working capital: Among nonprofits, 7-8% have more liabilities than assets and are technically insolvent. They need to build up sufficient working capital to improve financial stability.
  • Extended line of credit: Having an extended line of credit can increase financial risk, so it’s wise to address this concern strategically.
  • Debt covenant violations: Organizations need to comply with debt covenant terms and avoid issues from increased collateral, interest rates or penalty payments.

What to Look for When Reviewing Financial Statements

While watching for red flags to investigate further, you’ll also want to evaluate metrics that indicate the institution’s overall financial health. Knowing which issues to prioritize for examination can help you conduct a more thorough and valuable review for the organization. 

As you review financial statements, ask these essential questions:

  • Has the organization’s endowment or investments recently suffered significant losses due to COVID-19 fears?
  • Do the footnotes properly tell the company’s story, accurately representing financial transactions and decisions?
  • Has management properly read, reviewed and taken ownership of the financials?
  • Are new accounting pronouncements that apply to your company being adopted on a timely basis?

 Keep in mind that newer pronouncements for nonprofits include the financial reporting standard and two standards for revenue recognition (ASC 606 and ASU 2018-08). The new lease standard will also be applicable in a couple of years.

 Keep in mind that newer pronouncements for nonprofits include the financial reporting standard and two standards for revenue recognition (ASC 606 and ASU 2018-08).

Contact Marshall Jones for Trust Compliance and Accounting Services

Marshall Jones Certified Public Accountants And Advisors has been serving the Atlanta area for over 30 years, and we are committed to providing exceptional client support and expert services. We offer a range of tax and accounting services to help businesses and individuals manage their finances more successfully and accurately. With a highly accessible team, rapid response times and extensive industry expertise, we pride ourselves on meeting your requirements with quality solutions and support.

Contact Marshall Jones

Whatever your financial management needs, our team is here to help you move forward. For more information on our solutions, speak with one of our representatives today.

Why Churches Should use QuickBooks for Accounting

The world of church accounting is vastly different from accounting for for-profit entities. There are many unique challenges facing religious organizations. One of the first issues a church may face is finding and implementing an accounting software that meets their needs. There are many different accounting software solutions available for churches, but below are four reasons we believe QuickBooks may be a good fit for your church.

1. Robust Reporting

Churches have a responsibility to their congregation and other donors to have clean, readily available financial statements. Donors want to see that their money is being used effectively and the mission of the church is going forward. QuickBooks can easily create many different reports to provide church and ministry leaders with accurate and useful information. QuickBooks can produce reports for a variety of purposes such as creating year-end donor statements, obtaining financing for new building projects, budgeting for church programs, and so forth.

2. Restricted Donations Tracking

Churches and other non-profits are required to track restricted donations, which are contributions that have a donor-imposed restriction. For example, a donor may give money that is restricted for missions or a building fund, and the church is obligated to see that the money is used for the intended purpose. The QuickBooks class feature makes tracking restricted funds manageable. Churches can set up a class for each program, department, fund, etc. and track income and expenses by that specific grouping. A statement of activities can then be generated to view income and expenses for each class. This is a powerful tool churches can utilize to ensure restricted funds are used appropriately.

3. QuickBooks is Widely Used

QuickBooks is the most used accounting software for small businesses. Because it is so common, it is much easier to find volunteers or hire employees who are familiar with the software. Because QuickBooks is the industry standard, there is also a plethora of training available online at just the click of a button. Anything you may need to know about QuickBooks can be found through a quick Google search. QuickBooks also boasts a very useful online community where you can quick get answers for your questions and find tips from experts.

4. Ease of use 

QuickBooks is a very user-friendly program with a very intuitive interface. It is designed to be used by small business owners and those who do not have a robust understanding of accounting. In contrast, other accounting programs that are designed specifically for churches often feel clunky and have a much larger learning curve. QuickBooks makes regular processes such as receiving recurring donations or reconciling bank accounts a breeze.


Marshall Jones Specializes in Accounting for Churches

When you need to focus on your core mission, outsourcing your accounting services can be a great strategy. Marshall Jones with our team of top accountants in Atlanta, GA can supplement and perform your accounting functions for just as long as you need our services. Contact us to get started.


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: 

  1. Click on the gear icon in the top right of your screen 
  2. Under the “Your Company” heading, select “Account and settings”
  3. From here, you can click on the “Advanced” tab on the left side of your screen. 
  4. 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 different ways you can record that donation: 

  1. 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. 
  2. 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. 
  3. 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: 

  1. Click on the gear icon in the top right of your screen 
  2. Under the “Your Company” heading, select “Account and settings”
  3. From here, you can click on the “Advanced” tab on the left side of your screen. 
  4. 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: 

  1. Click Reports on the left panel.
  2. Type Sales by Customer Detail on the search box.
  3.  Click the Customize button in the upper right-hand corner.
  4.  Maximize the Rows/Columns section, and then click the Change columns link.
  5. Check the box for Donors.
  6.  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. 

Outsource Your Accounting to Marshall Jones

When you need to focus on your core business, outsourcing your accounting services can be a great strategy. Marshall Jones with our team of top accountants in Atlanta, GA can supplement and perform your accounting functions on-site or off-site for just as long as your organization needs our services. Contact us to get started.