QuickBooks for Nonprofits: The Complete Setup Guide

QuickBooks Online is popular with nonprofits for good reason—it's affordable, widely understood by accountants, and handles basic accounting well. But setting it up properly for nonprofit needs takes some planning.

This guide walks you through the complete setup process.

Before You Start

Choose the Right QuickBooks Version

Version	Best For	Monthly Cost
Simple Start	Very small orgs, minimal needs	~$30
Essentials	Small orgs, need A/P	~$60
Plus	Most nonprofits (has Classes)	~$90
Advanced	Large orgs, multiple users	~$200

Recommendation: Most nonprofits need Plus or higher for Class tracking (essential for grants).

Gather Information

Before setup, collect:

• Chart of accounts from your current system (or template)
• Bank account information
• List of grants and funders
• Fiscal year start month
• Team member access needs

Step 1: Company Settings

Basic Information

1. Go to Settings (gear icon) > Account and Settings
2. Under Company, set:
   • Company name (your legal name)
   • EIN (Tax ID)
   • Industry: Nonprofit
   • Company type: Nonprofit organization

Advanced Settings

1. Still in Account and Settings, go to Advanced
2. Enable these features:

Setting	Enable?	Why
Track classes	Yes	Essential for grant tracking
Track locations	Optional	Use for physical locations
Track projects	Optional	Alternative to classes for grants
Warn if duplicate check number	Yes	Prevents errors
Warn if duplicate bill number	Yes	Prevents errors

3. Set your Fiscal year (first month)
4. Set Close the books date after year-end close

Step 2: Chart of Accounts

Your chart of accounts is the foundation. Here's a nonprofit-friendly structure:

Assets (1000s)

1000 - Cash and Cash Equivalents
  1010 - Operating Checking
  1020 - Payroll Account
  1030 - Savings/Money Market
  1050 - Petty Cash

1100 - Accounts Receivable
  1110 - Grants Receivable
  1120 - Pledges Receivable
  1130 - Other Receivables

1200 - Prepaid Expenses
  1210 - Prepaid Insurance
  1220 - Prepaid Rent

1500 - Fixed Assets
  1510 - Furniture & Equipment
  1520 - Accumulated Depreciation

Liabilities (2000s)

2000 - Accounts Payable
2100 - Accrued Liabilities
  2110 - Accrued Payroll
  2120 - Accrued Vacation
  2130 - Accrued Benefits

2200 - Deferred Revenue
  2210 - Deferred Grant Revenue

Net Assets (3000s)

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)

Revenue (4000s)

4000 - Contributions
  4010 - Individual Contributions
  4020 - Corporate Contributions
  4030 - Foundation Grants
  4040 - Government Grants
  4050 - Special Events Revenue

4100 - Program Revenue
  4110 - Fee for Service
  4120 - Membership Dues

4200 - Other Revenue
  4210 - Interest Income
  4220 - Investment Income

Expenses (5000-8000s)

5000 - Personnel
  5010 - Salaries
  5020 - Payroll Taxes
  5030 - Health Insurance
  5040 - Retirement Benefits
  5050 - Workers Compensation

6000 - Program Expenses
  6010 - Program Supplies
  6020 - Participant Support
  6030 - Subcontractor/Consultant
  6040 - Program Travel

7000 - Operating Expenses
  7010 - Rent
  7020 - Utilities
  7030 - Office Supplies
  7040 - Telephone/Internet
  7050 - Insurance
  7060 - Professional Fees
  7070 - Staff Development
  7080 - Marketing/Communications

8000 - Other Expenses
  8010 - Depreciation
  8020 - Bank Fees
  8030 - Miscellaneous

Setting Up Accounts

1. Go to Settings > Chart of Accounts
2. Click New to add each account
3. Choose the correct Account Type and Detail Type
4. Use account numbers for organization (Settings > Advanced > Enable account numbers)

Step 3: Classes for Grant Tracking

Classes let you track income and expenses by grant (or any other dimension).

Create Your Class Structure

1. Go to Settings > All Lists > Classes
2. Create a parent class for organization:

Unrestricted
Restricted - Foundation Grants
  ├── Gates Foundation 2024
  ├── Ford Foundation 2024
  └── Kellogg Foundation 2025
Restricted - Government
  ├── HHS Youth Services
  └── DOE Education Grant

Class Best Practices

• One class per grant — Don't combine grants
• Include year — Helps distinguish multi-year grants
• Use parent classes — For grouping in reports
• Archive old classes — Don't delete, just make inactive

Step 4: Departments (Optional)

Use Departments (called "Locations" in QBO) for functional tracking.

Typical Department Structure

Programs
  ├── Youth Services
  ├── Adult Education
  └── Community Outreach
Management & General
Fundraising

This enables the functional expense reporting required for audited financials.

Setting Up Departments

1. Go to Settings > All Lists > Locations
2. Create your functional categories
3. Consider enabling "Make location tracking required" in Settings

Step 5: Customers and Vendors

Customers = Funders

Create a Customer for each funder:

1. Go to Sales > Customers
2. Create customer with funder details
3. Link to grants via Projects (if using) or Class

Tip: You can use Customer:Project structure if not using Classes for grants.

Vendors

Set up vendors as you pay them. Include:

• Legal name (for 1099s)
• Address
• Tax ID (for 1099 reporting)
• Default expense account

Step 6: Connect Bank Accounts

Bank Feeds

1. Go to Banking > Link Account
2. Connect your bank accounts
3. Set up matching rules for recurring transactions

Bank Feed Rules

Create rules to auto-categorize common transactions:

• Payroll → 5010 Salaries
• Rent payment → 7010 Rent
• Utility payments → 7020 Utilities

Step 7: Users and Permissions

Add Team Members

1. Go to Settings > Manage Users
2. Invite users with appropriate roles:

Role	Can Do	Best For
Admin	Everything	Executive Director, CFO
Standard (All)	Most tasks, no user management	Accountant
Standard (Limited)	Specific areas only	Program staff (if needed)
Reports only	View reports	Board members

Accountant Access

Invite your external accountant:

1. Settings > Manage Users > Accounting firms
2. Enter accountant's email
3. They get accountant-level access

Step 8: Nonprofit-Specific Configurations

Statement of Activities Setup

To generate nonprofit-style reports:

1. Customize the Profit & Loss report
2. Group by Class to show restricted vs. unrestricted
3. Save as a custom report

Functional Expense Tracking

For the Statement of Functional Expenses:

1. Use Departments for functions (Program, M&G, Fundraising)
2. Tag all expenses with both Class (fund) AND Department (function)
3. Run P&L by Department for functional view

Donor/Grant Tracking

For each grant received:

1. Create a Class for the grant
2. Record grant award as income to that Class
3. Tag all related expenses to that Class
4. Run Class reports for grant-level financials

Step 9: Reporting Setup

Essential Nonprofit Reports

Report	QBO Name	Customization Needed
Statement of Financial Position	Balance Sheet	Rename equity to "Net Assets"
Statement of Activities	Profit & Loss	Add Class columns
Statement of Functional Expenses	P&L by Department	Format as matrix
Budget vs. Actual	Budget vs. Actuals	Requires budget setup

Custom Reports

Save customized reports for quick access:

1. Run the report
2. Customize columns, dates, filters
3. Click Save Customization
4. Add to your Reports menu

Step 10: Ongoing Processes

Daily/Weekly

• Review and categorize bank transactions
• Enter bills as received
• Process payments

Monthly

• Reconcile all bank accounts
• Review unclassified transactions
• Run grant budget reports
• Post any accruals/adjustments

Quarterly

• Review grant spending pace
• Prepare board financial reports
• Reconcile restricted fund balances

Annually

• Close the books for the year
• Prepare for audit
• Archive completed grant classes

Common Setup Mistakes

Mistake 1: Skipping Classes

Not enabling Class tracking, then needing it later.

Fix: Enable Classes during setup, even if you're not sure you need them.

Mistake 2: Wrong Net Asset Structure

Using standard equity accounts instead of net asset categories.

Fix: Create proper net asset accounts (Without/With Donor Restrictions).

Mistake 3: No Functional Tracking

Not setting up Departments for functional expense allocation.

Fix: Create Program, M&G, and Fundraising departments.

Mistake 4: Mixing Fiscal Years

Not setting the correct fiscal year during setup.

Fix: Set fiscal year in Settings > Advanced before entering transactions.

When QuickBooks Isn't Enough

QBO handles basic nonprofit accounting, but you may need more if:

• You manage 5+ grants with detailed budgets
• Funder reporting is time-consuming
• You need restricted fund tracking beyond Classes
• You're struggling with compliance

Consider a grant management add-on that works with QuickBooks rather than replacing it.

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