FASB ASU 2016-14 Reporting in QuickBooks Online

FASB ASU 2016-14 (Presentation of Financial Statements of Not-for-Profit Entities) changed how nonprofits present their financial statements. If you use QuickBooks Online, generating compliant reports requires some workarounds.

This guide explains the requirements and how to meet them with QBO.

What Changed with ASU 2016-14

The standard, effective for fiscal years beginning after December 15, 2017, made several significant changes:

Net Asset Classifications (Simplified)

Before ASU 2016-14:

• Unrestricted
• Temporarily Restricted
• Permanently Restricted

After ASU 2016-14:

• Without Donor Restrictions
• With Donor Restrictions

The three-category system collapsed to two. "Temporarily" and "permanently" restricted are now combined into "with donor restrictions," though you must disclose the nature of restrictions.

New Required Statements

Statement	What's New
Statement of Financial Position	Two net asset categories instead of three
Statement of Activities	Must show expenses by both nature AND function
Statement of Functional Expenses	Required for ALL nonprofits (was voluntary)
Statement of Cash Flows	Direct or indirect method allowed
Liquidity Disclosure	NEW: Qualitative and quantitative info required

The Liquidity Disclosure

This is entirely new. You must disclose:

• Financial assets available within one year
• How you manage liquidity
• Any liquidity constraints

QuickBooks Online's Limitations

QBO doesn't natively produce ASU 2016-14 compliant statements. Here's what's missing:

No Net Asset Tracking

QBO has "equity" accounts but no concept of donor-restricted net assets. You must manually maintain the two-category breakdown.

No Functional Expense Matrix

The required Statement of Functional Expenses shows expenses by:

• Function (rows): Program, Management & General, Fundraising
• Nature (columns): Salaries, Benefits, Supplies, etc.

QBO can show expenses by account OR by department—not both simultaneously.

No Liquidity Analysis

QBO has no built-in liquidity disclosure tools.

Setting Up QBO for ASU 2016-14

Step 1: Chart of Accounts Structure

Create equity accounts for net asset categories:

3000 - Net Assets
  3100 - Without Donor Restrictions
    3110 - Undesignated
    3120 - Board Designated
  3200 - With Donor Restrictions
    3210 - Purpose Restrictions
    3220 - Time Restrictions
    3230 - Perpetual (Endowments)

Step 2: Enable Tracking Features

1. Classes — Use for grants/restricted funds
2. Departments — Use for functions (Program, Admin, Fundraising)
3. Locations — Optional, for physical locations

Go to Settings > Account and Settings > Advanced to enable these.

Step 3: Consistent Transaction Coding

Every expense transaction needs:

• Correct expense account (nature)
• Correct department (function)
• Correct class (fund/grant, if restricted)

This enables the cross-tabulation needed for functional expense reporting.

Generating ASU 2016-14 Statements

Statement of Financial Position

1. Run the Balance Sheet report
2. Export to Excel
3. Manually reclassify equity into:
   • Net Assets Without Donor Restrictions
   • Net Assets With Donor Restrictions
4. Add comparative prior year column

Statement of Activities

1. Run Profit & Loss by Class
2. Export to Excel
3. Create columns for:
   • Without Donor Restrictions
   • With Donor Restrictions
   • Total
4. Add row for "Net Assets Released from Restrictions"
5. Calculate change in net assets by category

Statement of Functional Expenses

This is the hardest one. You need a matrix of Nature × Function.

Option A: Manual Compilation

1. Run P&L by Department (functions as columns)
2. Ensure account detail shows nature
3. Export and format in Excel

Option B: Use Custom Report Builder

1. Create a custom report
2. Rows: Expense accounts (nature)
3. Columns: Departments (function)
4. This approximates the required matrix

Option C: Third-Party Tools Some reporting tools can pull QBO data and format it properly.

Liquidity Disclosure

Manually compile from QBO data:

1. Financial Assets at Year-End:

   • Cash and cash equivalents
   • Accounts receivable
   • Pledges receivable (due within year)
   • Investments (if liquid)

2. Less: Restrictions:

   • Donor-restricted funds
   • Board designations

3. Equals: Available for General Expenditure

The Net Assets Release Entry

When you spend restricted funds appropriately, you must "release" the restriction. This is a period-end journal entry:

Account	Debit	Credit
Net Assets - With Donor Restrictions	$X
Net Assets - Without Donor Restrictions		$X

To calculate $X:

1. Identify all spending against restricted funds during the period
2. Sum the amounts where restrictions were satisfied
3. Create the journal entry

This requires tracking restricted fund spending—something QBO doesn't do automatically.

Common Compliance Mistakes

Mistake 1: Not Releasing Restrictions

Many organizations forget the release entry, overstating restricted net assets.

Mistake 2: Wrong Functional Allocation

All expenses must be allocated to functions. Common errors:

• Leaving expenses unallocated
• Inconsistent allocation methods
• Not allocating shared costs

Mistake 3: Missing Liquidity Disclosure

The liquidity disclosure is required, not optional. Many organizations skip it.

Mistake 4: Inadequate Restriction Disclosure

You must describe the nature of restrictions in the notes. "With donor restrictions" alone isn't sufficient.

Audit Considerations

Auditors will look for:

• Two-category net asset presentation
• Functional expense matrix
• Net assets released calculation and support
• Liquidity disclosure (qualitative and quantitative)
• Restriction descriptions in notes
• Consistent allocation methodology

When QBO Isn't Enough

Consider additional tools if:

• You have many restricted funds
• Functional allocation is complex
• Audit prep takes excessive time
• You're making errors in net asset tracking

Options include:

• Grant management software that tracks restrictions
• Nonprofit-specific accounting add-ons
• Migration to fund accounting software

Summary

ASU 2016-14 compliance in QuickBooks Online requires:

1. Proper chart of accounts setup
2. Consistent use of Classes and Departments
3. Manual period-end calculations for releases
4. External compilation of required statements
5. Separate liquidity analysis

It's doable, but requires discipline and Excel skills. Organizations with complex restricted funds often benefit from specialized tools.

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