Fund accounting in QuickBooks is done by using class tracking as a proxy for funds — each class represents a fund (General, Building, Missions, etc.) and every transaction is tagged with its fund class to approximate fund-level financial reporting. It is the most common approach for nonprofits that cannot afford or do not yet need a standalone fund accounting system, but it comes with significant limitations that every nonprofit finance leader should understand before relying on it.
If you are reading this, you are probably in one of two situations: you are setting up fund tracking in QuickBooks for the first time, or you have been using it for a while and the workarounds are getting painful. Either way, this guide gives you the step-by-step setup instructions for both QuickBooks Online and QuickBooks Desktop, an honest assessment of what works and what does not, and clear criteria for when it is time to add a dedicated fund accounting layer.
Can QuickBooks Do Fund Accounting?
The short answer is: partially, with workarounds.
QuickBooks was designed for small businesses that track revenue and expenses to calculate profit. Fund accounting — which tracks money by purpose rather than by profit — is a fundamentally different accounting methodology. QuickBooks does not natively support fund classifications, donor restriction enforcement, or fund-level balance sheets.
What QuickBooks does offer is class tracking — a tagging system that lets you categorize transactions by any dimension you choose. Nonprofits repurpose this feature to create a class for each fund, effectively using QuickBooks classes as fund proxies.
This approach works at a basic level. You can:
- Tag every transaction with a fund class
- Run Profit & Loss by Class reports to see income and expenses per fund
- Use sub-classes for grants or programs within a fund
- Filter reports by class for board presentations
What this approach cannot do:
- Enforce donor restrictions — QuickBooks will not prevent anyone from coding an expense to a restricted fund class, even if the fund balance is zero
- Generate a fund-level balance sheet — QuickBooks Online's Balance Sheet by Class is unreliable and requires workarounds; it was not designed for this purpose
- Monitor grant budgets — There are no budget-to-actual comparisons by class with threshold alerts
- Produce Single Audit schedules — The Schedule of Expenditures of Federal Awards must be assembled manually
- Track net asset reclassifications — When temporarily restricted funds become unrestricted (conditions are met), the reclassification journal entry is entirely manual and easy to miss
Understanding these limitations up front saves you from building a system that works for six months and then breaks under the weight of audit requirements and board expectations.
How to Set Up Fund Accounting in QuickBooks Online
Here is the step-by-step setup for nonprofits using QuickBooks Online (QBO):
Step 1: Enable Class Tracking
Navigate to Settings (gear icon) > Account and Settings > Advanced. Under the Categories section, enable Track classes. Also enable Warn me when a transaction isn't assigned a class — this is critical. Without this warning, transactions will slip through untagged, and your fund reports will be incomplete.
If your QBO subscription does not include class tracking (it is not available on Simple Start), you will need to upgrade to Essentials, Plus, or Advanced.
Step 2: Create a Class for Each Fund
Go to Settings > All Lists > Classes. Create a class for each fund your organization manages. A typical church or nonprofit structure looks like this:
| Class Name | Fund Type | Example Use |
|---|---|---|
| General Fund | Unrestricted | Tithes, general donations, operating revenue |
| Building Fund | Temporarily Restricted | Capital campaign contributions and construction expenses |
| Missions Fund | Temporarily Restricted | Missions giving and missionary support disbursements |
| Benevolence Fund | Temporarily Restricted | Benevolence gifts and assistance distributions |
| Endowment Fund | Permanently Restricted | Endowment principal (income only is spendable) |
| Grant: Literacy Program | Temporarily Restricted | Federal or foundation grant for specific program |
Use a naming convention that makes the restriction type clear. When your finance team and staff see "Building Fund" in the class dropdown, they need to understand instantly that this is restricted money.
Step 3: Require Class on Every Transaction
This is the most important configuration step. Go to Settings > Account and Settings > Advanced > Categories and enable Make classes mandatory (if available in your QBO tier). If this option is not available, the "Warn me when a transaction isn't assigned a class" setting from Step 1 is your fallback.
Without mandatory class assignment, transactions will inevitably be entered without a fund tag. Over a month, even a 5% miss rate creates reconciliation headaches that compound over time.
Step 4: Use Sub-Classes for Grants Within Funds
For organizations managing multiple grants within a fund category, use QuickBooks sub-classes to create a hierarchy:
- Grants (parent class)
- Grant: HUD Housing Assistance
- Grant: State Literacy Program
- Grant: Foundation Arts Education
This lets you run reports at the individual grant level or roll up to see all grant activity together. It also keeps your main class list manageable as your organization grows.
Step 5: Run Profit & Loss by Class for Fund-Level Reporting
Go to Reports > Profit and Loss by Class. This is the closest QuickBooks gets to a fund-level income statement. Each column represents a fund, showing revenue and expenses for the reporting period.
Customize the report:
- Set the date range to your fiscal year or the current month
- Filter out any classes that are not active funds
- Export to Excel if you need to add fund balances at the top (QuickBooks does not show this)
Save this as a custom report so your team can re-run it quickly each month.
How to Set Up Fund Accounting in QuickBooks Desktop
QuickBooks Desktop follows a similar approach but with slightly different navigation:
Enable class tracking. Go to Edit > Preferences > Accounting > Company Preferences. Check the box for Use class tracking. Also check Prompt to assign classes to ensure users are reminded to tag every transaction.
Create your class list. Go to Lists > Class List. Create each fund as a class, using the same naming conventions described above. QuickBooks Desktop supports sub-classes for grant-level tracking.
Use memorized transactions for recurring fund allocations. If your organization makes the same fund allocations monthly — such as transferring a fixed percentage of general donations to the missions fund — set these up as memorized transactions. Go to Lists > Memorized Transaction List and create the recurring journal entry.
Run reports by class. QuickBooks Desktop's Profit & Loss by Class report is more reliable than QBO's version. It also offers a Balance Sheet by Class report that, while still imperfect, is more functional than QBO's implementation.
One advantage of Desktop: it handles class-based balance sheet reporting better than QuickBooks Online. If fund-level balance sheets are critical to your reporting and you are on a tight budget, Desktop may actually be the better QuickBooks option for fund accounting — though Intuit is progressively sunsetting Desktop in favor of Online.
Fund Accounting Reporting in QuickBooks
Here are the reports QuickBooks can generate for fund accounting, and their limitations:
Profit & Loss by Class
What it shows: Revenue and expenses for each fund (class) over a given period. Usefulness: High. This is your primary fund-level income statement. Limitation: It does not show opening or closing fund balances. You need to track fund balances separately.
Balance Sheet by Class
What it shows: Assets, liabilities, and equity broken down by class. Usefulness: Moderate in Desktop, low in QBO. Limitation: QuickBooks Online does not generate a reliable balance sheet by class for most subscription tiers. Even in Desktop, the balance sheet by class requires that every single transaction — including journal entries, payroll, and bank reconciliation adjustments — be tagged with a class. One untagged transaction throws off the entire report.
Statement of Functional Expenses
What it shows: Expenses broken down by program, management & general, and fundraising. Usefulness: Required for audited financial statements. Limitation: QuickBooks cannot generate this automatically. You must build it manually in Excel by mapping expense accounts and classes to functional categories. This is one of the most time-consuming audit preparation tasks for nonprofits on QuickBooks.
Budget vs. Actual by Class
What it shows: Budget compared to actual spending for each fund. Usefulness: Essential for grant monitoring. Limitation: QuickBooks budgets can be set at the class level, but there are no threshold alerts. You cannot set QuickBooks to notify you when a grant fund has spent 80% of its budget. You have to check manually.
Where QuickBooks Fund Accounting Falls Short
After working through the setup, it is important to be explicit about what QuickBooks cannot do — because these gaps are where nonprofit finance teams spend the most time on manual workarounds:
No restriction enforcement. This is the most critical gap. QuickBooks will allow anyone with transaction entry permissions to code any expense to any class. If a staff member charges a $5,000 expense to the Building Fund class when the building fund has a $2,000 balance, QuickBooks processes the transaction without hesitation. The overspend is invisible until someone manually reviews the fund balance — which might not happen until month-end.
No grant management capabilities. Federal and foundation grants have budgets, allowable cost categories, indirect cost rate caps, and reporting deadlines. QuickBooks has no concept of any of these. Grant budget tracking happens entirely in spreadsheets, which means your finance team is always working with data that is at least partially stale.
No automated Single Audit schedules. Nonprofits spending $750,000 or more in federal awards per year must undergo a Single Audit. The Schedule of Expenditures of Federal Awards (SEFA) requires detailed grant-by-grant reporting that QuickBooks cannot generate. Preparing these schedules manually typically adds $3,000–$8,000 in additional audit preparation costs.
No donor restriction tracking at the transaction level. When a donor gives a restricted gift, there is no way in QuickBooks to link the restriction conditions (purpose, time period, reporting requirements) to the class. This information lives in grant agreements and donor correspondence — not in the accounting system.
Fund balance reconciliation is manual and fragile. Because QuickBooks does not maintain a true fund balance (only class-tagged transactions), the finance team must calculate fund balances manually each month: opening balance + revenue - expenses = closing balance. Any untagged transaction, miscoded class, or missed journal entry throws off the balance, and finding the error means auditing every transaction in the class for the period.
When to Add a Fund Accounting Layer to QuickBooks
Not every nonprofit needs dedicated fund accounting software. Here are the clear signals that it is time to move beyond QuickBooks classes:
You manage more than three restricted funds. With one or two restricted funds, the spreadsheet reconciliation is manageable. At three or more, the manual tracking burden grows nonlinearly — each fund adds another column to reconcile, another set of restrictions to enforce, and another potential audit finding.
You receive federal grants requiring compliance reporting. Federal grants bring compliance requirements — allowable costs, indirect cost rates, SEFA schedules, drawdown tracking — that QuickBooks was never designed to handle. The manual preparation cost for a Single Audit often exceeds the annual cost of fund accounting software.
Your board requires fund-level financial statements. When board members ask "What is the balance of the building fund?" and the answer requires pulling data from QuickBooks, cross-referencing it with a spreadsheet, and manually calculating the balance, you need a better system. Board members deserve real-time, reliable fund balances — not next-month approximations.
You spend more than five hours per month on fund reconciliation. At an average fully loaded cost of $35–$50/hour for a nonprofit bookkeeper, five hours of monthly reconciliation costs $175–$250/month. A fund accounting layer like Nexus Fund that eliminates this reconciliation typically costs less than the labor it saves.
You have had an audit finding related to fund accounting. Audit findings related to fund restriction compliance, missing reclassification entries, or incorrect fund balances are serious. They erode donor trust, can trigger grant clawbacks, and often result in increased audit fees the following year. A proper fund accounting system prevents these findings.
Your organization is growing. If your nonprofit is adding programs, receiving new grants, or expanding to multiple locations, your fund accounting needs will only become more complex. Investing in proper fund tracking now prevents the pain of untangling years of class-based workarounds later.
For organizations that decide it is time to add a fund accounting layer, Nexus Fund is designed specifically for nonprofits on QuickBooks — adding fund-level controls, restriction enforcement, and audit-ready reporting without requiring a migration to a new general ledger. For churches with denomination-specific fund structures, see our guide on church accounting software and fund tracking.
Frequently Asked Questions
How do you do fund accounting in QuickBooks?
You approximate fund accounting in QuickBooks by enabling class tracking and creating a class for each fund (e.g., General Fund, Building Fund, Missions Fund). Every transaction is tagged with the appropriate class. You then run Profit & Loss by Class reports for fund-level income statements. However, QuickBooks does not enforce fund restrictions, generate fund-level balance sheets reliably, or provide grant budget tracking — so most nonprofits supplement with spreadsheets or a dedicated fund accounting layer.
Is QuickBooks good for nonprofits?
QuickBooks is good for general nonprofit bookkeeping — paying bills, tracking expenses, reconciling bank accounts, and basic financial reporting. It is widely used because it is affordable, familiar to bookkeepers, and well-supported. However, QuickBooks was not designed for fund accounting. Nonprofits that manage restricted funds, federal grants, or require fund-level financial statements will find that QuickBooks classes are an incomplete substitute for true fund accounting software.
Can QuickBooks Online do fund accounting?
QuickBooks Online can approximate fund accounting using class tracking, but it cannot do true fund accounting. Key limitations include: no restriction enforcement at the transaction level, no reliable balance sheet by class, no grant management budget monitoring, and no automated Single Audit schedules. For nonprofits with simple fund structures (one or two unrestricted funds), the class-based approach may be sufficient. For organizations managing restricted funds or federal grants, a dedicated fund accounting layer is recommended.
What is the best fund accounting add-on for QuickBooks?
Nexus Fund is designed as a QuickBooks-native fund accounting layer that adds fund-level tracking, restriction enforcement, grant budget monitoring, and audit-ready reporting on top of QuickBooks. Unlike standalone platforms that require data migration, Nexus Fund works with your existing QuickBooks setup through bidirectional sync. Other options include Araize FastFund (a legacy add-on with limited features) and Aplos (a standalone platform that requires migrating away from QuickBooks).
How do I track restricted funds in QuickBooks?
Create a separate class for each restricted fund in QuickBooks (e.g., "Building Campaign - Restricted" or "Literacy Grant - Restricted"). Tag every revenue and expense transaction related to that fund with its class. Run Profit & Loss by Class to see activity. Track the fund balance in a separate spreadsheet, since QuickBooks does not reliably produce a balance sheet by class. Be aware that QuickBooks will not prevent users from coding expenses to a restricted fund even when the fund balance is insufficient.