QuickBooks for Nonprofits
This list of QuickBooks tips is brought to you by Don Glenn, who has been using QuickBooks Pro for over 11
years to maintain the books for non-profit organizations. You can find
him at members.cox.net/donglenn/.
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The beginning of Fund Accounting. For the person that has just assumed the unenviable task of keeping the books for a small non-profit organization, relax. We will first go over the very basics of accounting. The accounts can be broken down into three categories, Assets, Liabilities and Equity.
- Assets are things owned by the organization. Those things are such items as Cash (e.g. your checking account), Securities (stocks and bonds), Real Property (e.g. a church building), Land, and money owed to the organization. Basically, if you could sell the item and receive cash, it is an asset.
- Liabilities are things you owe to others. Examples are Accounts Payable and Notes Payable (e.g. your mortgage for the church building).
- Equity is the worth of the organization. It is usually expressed and the sum of your assets (what you own), less the sum of your liabilities (what you owe). For example, if you own a church building with $100,000 and land worth $50,000 (total assets of $150,000), but owe a mortgage on them of $80,000, you have equity of $70,000 (150,000-80,000=70,000). Because accountants have a particular reason that is not really germane to using Quickbooks, they usually turn the formula around so it looks like Assets = Liability + Equity. It is really the same. In our example, $150,000 = $80,000 + $70,000.
- That is the way Quickbooks thinks of accounting. This is basically the for-profit version which is is how all Quickbooks versions (even the Non-Profit one) work. Now we need to look at the difference between a for profit and a not for profit company. In a for profit company, basically the company owns all the equity so there is no need to divide it up. In a not for profit organization, we must keep the various pots of ownership separate. These are normally called Funds and represent various pots of money that has been segregated for specific purposes. An example could be a church building fund which can only be used for building the church or retiring the mortgage. Money designated for that can't be used to pay for a church school bus or the pastor's salary. Those would come out of a general operations fund. Therefore, you must keep these funds segregated and only used for the specific purpose it was established for.
- A subpart of equity accounts are income and expense accounts. These are the increase and decrease in the worth of the organization due to outside activities. For example, if you receive income, you probably also receive cash. You would add the amount to your cash account and to your income account, thus keeping the accounting equation in balance. If you write a check for an expense, you would decrease your cash and decrease your equity via your expense account. So, to expand our example in item #1 above, our accounting equation has now become Assets = Liabilities + Income - Expenses + Equity.
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Now, if you were to expand the Asset part of the formula to include all assets you had, you could have an accounting
formula something like Cash + Checking + Savings + Accounts Receivable + Notes Receivable + Building + Land =
Liabilities + Income - Expenses + Equity. This could get messy in a very large organization. Actually, it would not
take very much of an organization if we also expanded the Liabilities, Income, Expenses and Equity. Accountants have
an easy answer for this; another accounting equation: Debits = Credits. This allows us to turn the very long
horizontal account list to a series of entries which have only two possibilities. The account (e.g. Cash) can only have
one of two possible activities. It is either a debit or a credit. Now we can post activities with only a three
column sheet.
- Column 1 is the account name and contains the actual name such as Cash.
- Column 2 is the debit column and contains any amount that is a debit. Abbreviated Dr.
- Column 3 is the credit column and contains any amount that is a credit. Abbreviated Cr.
Account Debit Credit Cash 100 Donation Income 100
So here are the way we affect the accounts using debits and credits:- For Asset accounts, debits increase the balance and credits decrease the balance.
- For Liability accounts, debits decrease the balance and credits increase the balance.
- For Equity accounts, debits decrease the balance and credits increase the balance.
- For Income accounts, debits decrease the balance and credits increase the balance.
- For Expense accounts, debits increase the balance and credits decrease the balance.
One way to learn these five lines above is to memorize them. I wouldn't. I always remembered that debits increase assets and figured what happened to the other side. Here are some examples to show you.
Let's assume you pay on the mortgage (a liability). You would reduce cash (credit it), therefore:
Account Debit Credit Mortgage Liability 1,000 Donation Income 1,000
Now, let's assume you paid your utilities expense. You would reduce cash (credit it), therefore:
Account Debit Credit Utilities Expense 400 Cash 400
Now, your church has purchased a bus (asset) with part cash (asset) and a note on the balance (liability), therefore:
Account Debit Credit Vehicle 20,000 Cash 5,000 Note Payable on Bus 15,000
Note that you can have multiple lines in a journal entry, but still the debits and credits MUST equal. Quickbooks will not allow you to post entries that are not in balance.
See what other examples you can come up with. For example:
- How would receiving cash from someone who owed you money be entered?
- How would you post purchasing an investment for cash?
- How would you post purchasing Tee shirts for sale to your youth group?
- How would you record the sale of the Tee shirt to a church member?
