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This is the third blog of my series on configuring QuickBooks for use in a nonprofit organization. In my first blog, I mentioned that the very first step in configuring QuickBooks is to have a QuickBooks implementation meeting, and I recommended using a questionnaire to facilitate the meeting and act as a centerpiece. My second blog dealt with setting up the chart of accounts in a nonprofit environment. This blog will cover steps 3 (using the "Customer/Jobs" utility) and 4 (using the "Classes" utility).
QuickBooks is a relational database, and as such it offers a few ways to flag (or relate) transactions such as invoices, cash receipts, bills, cash disbursements, and journal entries to Customer/Jobs (funding sources) and Classes (programs). By flagging a transaction (relating the transaction to a particular grant or program), QuickBooks can then quickly pull the related data into relevant reports by a particular grant or program. QuickBooks offers the user two utilities that can be assigned to each of the transactions mentioned above. The first of these is the "Customer/Jobs" utility.
The "Customer/Jobs" utility should be used to keep track of your nonprofit's funding sources. Let's say that the XYZ Foundation awards your nonprofit a grant for 2011. In QuickBooks, set up a customer called "XYZ Foundation." Next, set up a job underneath the XYZ Foundation called "2011 XYZ Foundation Grant." In database vernacular, the customer is a "parent" record and the job is a "child" or subordinate record. They are related to one another, but they are separate records in the database. By using this hierarchal setup, you will be able to keep track of all the grants that were awarded to your nonprofit by the XYZ Foundation, and you can keep track of each individual grant simultaneously.
A common error that many nonprofits make is to create a customer record for each grant even if it is from the same funding source. Using the setup recommended here will allow you to see the history of all grants from the same funding source. An implementation questionnaire (mentioned above and in my second blog) will assist you in making a list of your customers (funding sources) and the individual grants (jobs) awarded by those funding sources to your nonprofit. Evaluate your current funding sources and put them in this hierarchical order. Your list should look something like this:
This setup allows you to go to your "customer" (funding source) record in QuickBooks and see all activity for that funding source at a glance.
The QuickBooks "Class" utility should be used to manage and report on your nonprofit's programs. If you read my first two blogs, you will remember that a nonprofit's programs are defined as "what the nonprofit does" (and not who funds the nonprofit). You and all the stakeholders involved with setting up QuickBooks should have come to a consensus on what your programs are and you should have a list of these programs. Using the list of programs from your implementation meeting, go to the "lists" option in the QuickBooks database and then click on "Class List." Add each program as a QuickBooks class. If you need help doing this, just click on the help button or the F1 key while you are in the Class List screen, and relevant help will pop up on your screen. A sample listing of programs for a nonprofit might look something like this:
For an explanation of the concepts in this blog that shows you how to set up "Customer/Jobs" (your funding sources) and "Classes" (your programs), see this short video.
My next blog post will show you how to tie together the chart of accounts, funding sources, and programs in transactions within QuickBooks. After these relationships are built for each transaction (accounts receivable, cash receipts, accounts payable, cash disbursements, and journal entries), you will be able to use standard reports in QuickBooks (Profit & Loss, Profit & Loss by Job, and Profit & Loss by Class) to run reports by grant (funding source or Customer/Job) and by program (Class).
My next blog post in this series is:
Mark McCallick, CPA, CITP has a practice dedicated to nonprofit organizations and small business. He has served nonprofit organizations for over 25 years and is a Certified QuickBooks Pro Advisor. This blog series was updated for our readers in February 2013 by Mr. McCallick.
Editor's note: This blog post was updated in June 2016 to remove broken links.
Can you tell me where can I find all six steps (the blogs)?
If you click on the tag "QuickBooks" at the bottom of this post, you'll be able to see all four posts in the series (that covered the six steps) as well as other QuickBooks related content and webinars.
Here's the link: forums.techsoup.org/.../QuickBooks
Hope that helps!
In addition to this blog series, Mark conducted a webinar with TechSoup. You can view the archived recording here along with a variety of the resources, samples, and sites he recommends for learning more.
If you set up classes based on various programs the nonprofit is involved in, how then do you distinguish admin, development versus program expenses?
I have been using QuickBooks for five years and gone to a few trainings--and bought the book. This is the first true explanation of what the heck customers/jobs are for a nonprofit. Thanks so much.
Npsahm, this would be a great question for the TechSoup Community. forums.techsoup.org/.../20.aspx
Your take on classes here doesn't seem to be fully consistent with the UCOA's approach, which you mention in setting up accounts in the first post. Breaking out programs like this makes sense, but shouldn't you also have classes for fundraising and management and general (and possibly common costs)?
thanks, this is great. My big question is how to see the employers payroll costs divided into classes (projects). Also worker comp payments.
RE: The Labor Distribution in a Nonprofit. If you are using QuickBooks payroll you would create the labor distribution using the Jobs and Classes you setup originally. I have many clients who use an outside payroll service. For those clients using an outside service I create a labor distribution "matrix" using a spreadsheet software. I setup the Jobs and classes along the horizontal axis and the names of each employee along the verticle axis. I insert the perentage distribution for each employee at each coordinate cell. Once I do this, I schedule a meeting withe the Payroll Company and ask if they can setup the payroll based upon the labor distribution I setup. Normally this is easily done by the payroll company. What normally happens is that the Payroll company sets up screens in their software that allow the Nonprofit to process payroll using the jobs an classes setup in implementation, It also allows for the flexibility to add new jobs and classes and more importantly to change the percentages for each employee as the Nonprofit gains and loses old and new jobs and classes. Hope this helps.
Mark McCallick, CPA.CITP
We have a donor called City Grant - which is in QuickBooks as a customer. We also have a group of customers and expenses that we want to follow and generate reports for a project called Art Trifecta. We also have Art Trifecta set up as a customer job, but if we use it as the customer when we receive revenue from the City Grant, we can no longer track those funds under the City Grant customer. How can we keep City Grant as a customer and also print reports for the Art Trifecta project.
Thank you for your e-mail. It is very difficult to give good advice to readers when I only see a bit of the issue over which they are concerned.
Based upon the information you sent, I think your issue is that you have your Customer/Job and Class utility incorrectly setup. As my blog explains, use the Customer/Job utility for Funders or Funding sources (see blog for example of this). Next, define your “programs, events, what you do”. These things should be setup as a Class (see blog for examples). Therefore, it looks like you have correctly setup “City Grant” as a customer. Customer/Jobs under this City Grant customer should be the actual individual grants given each year (or whatever time frame they grant you funds). So you might have City Grant as the Customer and 2016 City Grant as the Job underneath this customer. Next I would consider setting Art Trifecta up as a class – it clearly not a funding source. It sounds like an event funded by many different funding sources. If you set up City grant as a customer job and Art Trifecta as a Class you can run reports for each funder of the Art Trifecta (P&Ls).
Hope this helps – hard to give good advice without seeing the whole database.
Mark McCallick, CPA.CGMA
Looking for help with QuickBooks online version. It doesn't have Jobs under the Customers/Donors. Thanks. New user to online nonprofit version.
I've posted your question over in the forums here: forums.techsoup.org/.../41482.aspx
You may want to check back in a few days; someone may know the answer to your question and post a helpful answer.
We also have these resources available:
1. QuickBooks Online free webinar (a link to the recording should be available on this page soon): cc.readytalk.com/.../meetingArchive
2. QuickBooks Made Easy training: www.techsoup.org/.../quickbooks-online-made-easy-for-nonprofits---the-essentials-(discounted)--G-49679--
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