How to Track Restricted Funds in QuickBooks Online

Tracking restricted funds in QuickBooks Online takes extra work, because QuickBooks Online is general accounting software and wasn't built for nonprofit fund accounting. The sections below cover the common workarounds, their limits, and what to do when you outgrow them.

Why restricted funds are hard to track in QuickBooks Online

Suppose a donor gives your nonprofit $50,000 "for youth programs." Your organization must honor the documented restriction and account for it under its reporting framework, which means you need to:

1. Track the restriction, so you know the money can only pay for youth programs.
2. Charge only eligible expenses to the money.
3. Report accurately to the donor and your auditors on how you used the money.
4. Record the release when the restriction is met under GAAP.

QuickBooks Online has no built-in idea of a restricted fund. It records money coming in and going out, but it doesn't record what the donor intended.

Common workarounds and their problems

Workaround 1: Classes

Create a Class for each restricted fund or grant. Apply the Class to the revenue when you receive it, and to the expenses when you spend it.

To set it up on Plus or Advanced:

1. Go to Settings > Account and settings > Advanced.
2. In the Categories section, turn on Track classes.
3. Go to Settings > All lists > Classes and create a Class for each restricted fund.

The problems:

• Classes don't enforce anything, so staff can easily pick the wrong one.
• QuickBooks Online budgets follow your fiscal year and your accounts, so award-specific periods, categories, or revisions may need a separate schedule.
• You build reports by hand.
• Long Class lists get hard to manage, and Plus allows only 40 active Classes and Locations combined.
• QuickBooks Online doesn't show the remaining restricted balance.

Classes are reporting tags. They aren't self-balancing funds, restriction accounting, donor records, or compliance controls.

Workaround 2: Customers and Projects

Create a Customer for each funder and a Project for each grant, then assign income and expenses to the Projects.

To set it up on Plus or Advanced:

1. Create a Customer for each funder.
2. Add a Project under each Customer for each grant.
3. Assign transactions to the Projects.

The problems:

• Each Project has exactly one Customer, so the method doesn't work for restricted funds with several donors.
• Several donors require workarounds, such as sales receipts combined with journal entries.
• The manual steps take time.
• Projects don't give you a budget that follows the award's own terms.

Workaround 3: Locations

Use the Location field as an internal reporting dimension.

The problems:

• A Location applies to the whole transaction, so you can't split one transaction across funds.
• Many organizations already use Locations for sites or departments.
• Locations share the 40-entry limit with Classes on Plus.
• Locations have the same reporting limits as Classes.

Workaround 4: Separate bank accounts

Open a separate bank account for each restricted fund.

The problems:

• Many accounts are hard to manage when you have many grants.
• Bank fees add up.
• Cash management becomes harder.
• You still need general ledger tracking for proper reporting.

What restricted fund tracking needs

Requirement	Built into QuickBooks Online?	Notes
Tag income as restricted	Partly	Classes work, but QuickBooks doesn't enforce them
Track spending against a restriction	No	Manual only
Budget vs actual by fund	Partly	Plus and Advanced offer fiscal-year budgets by account, subdivided by Class or Location, with a Budgets vs. Actuals report. Award-specific periods, categories, and revisions may need a separate schedule
Remaining balance	No	Manual calculation
Restricted funds with several donors	No	Difficult with Projects, which allow one Customer each
Release tracking	No	Needs a supporting schedule and a process your CPA approves
Funder reports	No	Built by hand

The GAAP requirement for releases

Under ASU 2016-14, a donor restriction is released when its time or purpose restriction is met. Spending cash doesn't release it automatically. Releases appear as reclassifications in the statement of activities, and they show up in ending net assets with and without donor restrictions.

In QuickBooks Online, the release process means:

1. Keeping support for each restriction and for the events that meet it
2. Preparing and reviewing release activity at the end of each period
3. Recording releases with the account design and entry policy your CPA approves

There is no single standard release journal entry. Many nonprofits keep a supporting schedule outside QuickBooks Online.

Revenue timing is a separate question. The dates when you receive, spend, or are awarded money don't decide recognition by themselves. An unconditional contribution, a conditional contribution whose barrier isn't overcome yet, and an exchange transaction each follow different accounting. Follow the classification and revenue recognition policy your CPA approves.

When to consider a grant management tool

You may have outgrown the workarounds if:

• Funder reports take hours of manual work in QuickBooks Online.
• You aren't confident that money is spent correctly.
• You keep parallel tracking in spreadsheets.
• You fight the one-Customer-per-Project limit for funds with several donors.
• Audit preparation means a rush to document restricted fund activity.
• Your grant list has grown so much that mapping, review, and reconciliation no longer run reliably.

Adding a grant management tool

Grant management tools connect to QuickBooks Online and add grant tracking that QuickBooks Online lacks.

Look for:

• A QuickBooks Online connection, not a replacement for QuickBooks
• Automatic expense allocation to grants
• Budget vs actual tracking
• Support for funds with several donors
• Funder report preparation
• An audit trail

With GrantLink, the process works as follows:

1. Transactions sync from QuickBooks Online on the automatic schedule, or when you select Sync now.
2. You link each grant's QuickBooks records on its Expenses tab. GrantLink allocates matching records automatically, and you review exceptions by hand.
3. You track budgets and spending against the latest synced data.
4. You create a grant report with Draft report with Assistant on the grant's Reporting > Reports page, or from Chats > New chat. The report then appears on the grant's Reports page.
5. Your accountant still uses QuickBooks Online for the general ledger.

Your accounting stays in QuickBooks Online, and GrantLink adds grant budgets, restricted fund balances, allocations, and funder reports. See GrantLink's grant management software for QuickBooks Online for details.

Getting started

If you track grants with Classes or Projects today:

1. Document how you track each grant now.
2. Find where your team spends the most manual effort.
3. Count your grants and note how complex they are.
4. Consider whether the work will get harder as you grow.

If your grants have become complex enough that manual controls are unreliable, evaluate a grant management tool. Compare the setup cost, the time spent on closing and reporting, and your control needs. There is no standard number of grants that decides it.

How GrantLink supports this today

After you add a grant, open its Details page and use the QuickBooks panel to pick the Customers, sub-customers, Projects, Locations, or Classes for Expenses and for Money received. GrantLink allocates eligible expense lines that match the Expenses links automatically. Money received links match income or revenue records, so a matched line isn't always a cash receipt. GrantLink doesn't require one tracking type for the whole organization.

Grants > Restricted funds shows restricted fund balances, and its Releases tab lets you prepare and review release activity. In Settings > QuickBooks > Mapping, you choose the QuickBooks accounts used to identify release activity. Grant links are still set on each grant, and the shared mapping settings don't relink existing grants. GrantLink doesn't change QuickBooks Online unless your organization allows that change in Settings > QuickBooks > Permissions.

Sources

• FASB: ASU 2016-14: presentation of donor restrictions, releases, and disclosures.
• FASB: ASU 2018-08: contributions, conditions, and exchange transactions.
• Intuit: Turn on class tracking, Set up and use location tracking, and Create budgets: QuickBooks Online features and plan limits.
• Intuit: Learn about usage limits: the combined Class and Location limit on each plan.