Wednesday, November 17, 2010

Customizing QuickBooks for Nonprofit Organizations

There are many types of nonprofit organizations—health and welfare, religious, education, research, social organizations, and professional associations. Each type needs to collect for services, products, dues, grants, donations, and pledges; pay expenses; pay employees; and generate internal financial statements. Because nonprofit organizations can be subject to a high level of public scrutiny, maintaining accurate accounting records is essential for them. 1

Company Setup

The “EasyStep Interview” discussed in PPC’s QuickBooks Solutions Guide guides users through the process of creating a company in QuickBooks and offers setup hints for the type of business selected. To tailor QuickBooks to specifically handle a nonprofit organization, consider enabling the following preferences: (See section 207 of PPC’s QuickBooks Solutions Guidefor further discussion of preferences.)

Inventory. Nonprofit organizations may need to track inventory if they sell products like clothing, books, or other items. To turn on inventory preferences, answer “Yes” during the “EasyStep Interview” to the question “Do you want to track inventory?” Inventory also can be enabled by selecting “Edit,” “Preferences” from the menu, then by choosing the “Items & Inventory” icon from the list of icons appearing on the left side of the “Preferences” window and checking the “Inventory and purchase orders are active” checkbox in the “Company Preferences” tab. Setting up inventory items, accounts, and opening balances is discussed beginning in paragraph 203.35, and an inventory setup checklist is provided in Appendix 2F of PPC’s QuickBooks Solutions Guide.

Sales Tax. Nonprofit organizations may need to collect sales tax if products are sold. Sales tax preferences are enabled in QuickBooks by answering “Yes” during the “EasyStep Interview” to the question “Do you charge sales tax?” Sales tax preferences can also be enabled by selecting “Preferences” from the “Edit” menu and then choosing the “Sales Tax” icon from the list of icons appearing on the left side of the “Preferences” window. Answer “Yes” to the question “Do You Charge Sales Tax?” in the “Company Preferences” tab. Even if the sales tax feature is turned on in the “EasyStep Interview,” additional information should still be entered in the “Preferences” window (for example, when sales tax is paid, when sales tax is owed, most common sales tax, and whether to mark taxable amounts with “T” when printing). Sales tax items, sales tax codes, groups, and opening balances are discussed beginning in paragraph 203.26, and a sales tax setup checklist is provided in Appendix 2E of PPC’s QuickBooks Solutions Guide.

Time Tracking (QuickBooks Pro, Premier, Premier-Accountant, and Premier-Nonprofit). Nonprofit organizations may need to track time by employee, donor, or volunteer for specific projects. To use time tracking, enable the QuickBooks preference during the “EasyStep Interview” by answering “Yes” to the question “Do you want to track time in QuickBooks?” Time tracking also can be enabled by selecting “Preferences” from the “Edit” menu. Select the “Time & Expenses” icon and the “Company Preferences” tab. Answer “Yes” to the question “Do you Track Time?” The user also should enter the first day of the work week in this screen.

Classes. FASB ASC 958-205 (formerly SFAS No. 117, Financial Statements of Not-for-Profit Organizations) requires nonprofit organizations to report amounts for three classes of net assets—unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. Thus, revenues and expenses may be grouped in QuickBooks using those classifications so that those amounts can be determined, or classes can be used to group functional expense classifications (that is, Programs, Administration, and Fundraising) and subclasses can be used to group specific location or program expenses (such as Westside Clinic, Southside Clinic, and Mobile Lab or Foodbank, Night Shelter, and Soup Kitchen) and to designate restrictions. To use classes, enable the QuickBooks preference by selecting “Preferences” from the “Edit” menu, choosing the “Accounting” icon from the list of icons appearing on the left side of the “Preferences” window, and checking “Use class tracking” in the “Company Preferences” tab. QuickBooks also allows users to require a class to be entered before a transaction is recorded. (Section 206 of PPC’s QuickBooks Solutions Guidediscusses using classes further. Also see paragraph 702.12.)

Member, Donor, and Client Setup The organization’s members, donors, and clients should be entered in the “Customer:Job List” so that information about them can be tracked. To set up members, donors, and clients, go to the “Customer Center” by clicking on the “Customer Center” icon. Click the “New Customer & Job” button, and enter the client data. The “Add/Edit Multiple List Entries” window can be used to add and/or edit multiple clients. (See the discussion at paragraph 206.12 of PPC’s QuickBooks Solutions Guide.) Notes can be kept on each client and are entered on the “Edit Customer” window. (Click the button on the right side labeled “Notes.” The “Customer:Job List” will display an icon indicating notes are available.) Custom fields can be added in the “Additional Info” tab to track birthday, spouse, administrative assistant, fiscal year end, or any other meaningful data. Keep in mind, however, that an individual list is limited to seven custom fields with a maximum of fifteen custom fields for all lists. The same field (e.g., birthday) that applies to customers, vendors, and employees counts as one field.

Setting up Members, Donors, and Clients by Type Nonprofit organizations may find it useful to track and report members, donors, and clients by type. Some useful types might be type of contributor or member (sponsor, donor, patron, or subscriber), location of contributor or member, industry represented by donor or member, or type of services provided to clients. For example, a nonprofit shelter may set up contributors with types (e.g., business and corporate, foundation, government, and private). Each customer type may have up to five levels of subtypes. Reports, labels, and summary statements may print by customer type.

To group members, donors, or clients by type, first create the types by selecting “Customer & Vendor Profile Lists” and then “Customer Type List” from the “Lists” menu. Click on the “Customer Type” menu button on the screen that appears, and select “New.” Once types have been created, assign members, donors, or clients to the types by double-clicking each name on the “Customer:Job List,” selecting the “Additional Info” tab, and choosing the appropriate type from the drop-down list under “Type.”

Note: Types can be added “on the fly” as member, donor, or client information is entered. Simply choose “” from the drop-down list of types on the “Additional Info” tab.

Setting up Services, Products, Dues, and Pledges Nonprofit organizations collect for services, products, dues, donations, and pledges. This can be accomplished in QuickBooks by setting up items for each service or product provided as follows:

a. Service items should be used for dues, pledges, memberships, or sponsorships. Service items are set up by choosing “Item List” from the “Lists” menu. Click on the “Item” button and select “New.”

b. Miscellaneous charges should be set up as other charge items. For example, a monthly breakfast meeting with a fee of $10 could be set up as an other charge item called “Meetings.” Other charge items are set up by choosing “Item List” from the “Lists,” menu. Click on the “Item” button and select “New.”

c. Sales of products (t-shirts, books, or other items) should be set up as noninventory or inventory part items. Inventory and noninventory part items are set up by choosing “Item List” from the “Lists” menu. Click on the “Item” button and select “New.” (The inventory preference must be enabled in “Items & Inventory.” See paragraph 203.35 and Appendix 2F of PPC’s QuickBooks Solutions Guide.) Using inventory part items will update quantities on hand, cost of goods sold, and inventory values automatically when the items are entered on an invoice or statement charge. If sales tax is charged on products sold, ensure the sales tax preference is enabled (see paragraph 203.26 and Appendix 2E of PPC’s QuickBooks Solutions Guide) and select the “Tax Code” on the “Edit Item” or “New item” window. Subitems can be created for up to five levels. An example of sponsorship subitems might be Diamond Circle, Gold Circle, and Silver Circle.

The “Add/Edit Multiple List Entries” window can be used to add and/or edit multiple items. (See the discussion at paragraph 206.12 of PPC’s QuickBooks Solutions Guide.)

Nonprofit organizations typically are run based on budgets, so reports of actual results versus budgeted amounts are important tools for them. Budgets are created in QuickBooks by selecting “Planning & Budgeting” and then “Set Up Budgets” from the “Company” menu. QuickBooks will display the “Create New Budget” wizard. 2

Note: If a month-by-month budget is not needed, set up the budget by entering the annual budget amount in the first month’s amount field.

Follow the onscreen instructions to create the budget. For further information on creating a budget, see paragraph 203.2 of PPC’s QuickBooks Solutions Guide.

Nonprofit organizations frequently experience periods of limited cash flow. QuickBooks allows users to forecast their cash flows for the next six weeks based either on the organization’s experience during the previous six weeks or amounts inputted by the user. An in-depth discussion of the feature is located in section 403 of PPC’s QuickBooks Solutions Guide.

Chart of Accounts Consistent, quality financial reporting has long been a goal of nonprofit organizations and those that are interested in their financial results. To aid nonprofit organizations in reaching that goal, CompassPoint Nonprofit Services, a nonprofit consulting and training organization, helped develop the book, Unified Financial Reporting System for Not-for-Profit Organizations—a Comprehensive Guide to Unifying GAAP, IRS Form 990, and Other Financial Reports Using a Unified Chart of Accounts. The book assists the reader in either developing a nonprofit organization’s new chart of accounts or cross-referencing a nonprofit organization’s existing chart of accounts so that various financial reports are quickly and easily prepared. Nonprofit organizations that have multiple reporting responsibilities may wish to consult this book. Contact CompassPoint at www.compasspoint.org or (415) 541-9000.

QuickBooks Premier-Nonprofit includes a copy of the Unified Chart of Accounts (UCOA) for nonprofit organizations. It is used automatically if the company file is created using the “EasyStep Interview” and Nonprofit is selected as the industry type. If the “EasyStep Interview” was not used, the user can import the UCOA by selecting “Import Nonprofit Chart of Accounts (UCOA)” from the “Nonprofit” menu.

Practitioners using QuickBooks Premier-Accountant can import the UCOA for their nonprofit clients that are not using QuickBooks Premier-Nonprofit by using the “Toggle” feature. As discussed in paragraph 700.4 of PPC’s QuickBooks Solutions Guide, practitioners can toggle between other editions of QuickBooks with Premier-Accountant by selecting “Toggle to Another Edition” from the “File” menu. They should select QuickBooks Premier-Nonprofit and select “Toggle.” QuickBooks closes Premier-Accountant and reopens with the QuickBooks Premier-Nonprofit. Using the QuickBooks Premier-Nonprofit menu, practitioners can import the UCOA as discussed in paragraph 702.10 of PPC’s QuickBooks Solutions Guide. When clients open their files in their edition of QuickBooks, the chart of accounts will be available to them. Appendix 7A-3 of PPC’s QuickBooks Solutions Guideillustrates a sample chart of accounts for a social service organization.

Note: The “Toggle” feature is only available in QuickBooks Premier-Accountant.

Solutions to Common Problems

Net Asset Classification and Functional Expenses As discussed in paragraph 702.2 of PPC’s QuickBooks Solutions Guide, FASB ASC 958-205-45 (formerly SFAS No. 117) requires nonprofit organizations to report revenues and expenses as unrestricted, temporarily restricted, or permanently restricted. Many organizations also are required to report expenses by their functional classification, such as major classes of program services and supporting activities. To accomplish that in QuickBooks, set up classes for unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets, or set up classes for functional expense classifications with subclasses for specific programs and restrictions and specify the appropriate class when recording each transaction.

While QuickBooks can track revenues and expenses by class, it cannot track balance sheet 3 amounts by class. Thus, the balance sheet report produced by QuickBooks does not meet the FASB ASC 958-205 (formerly SFAS No. 117) requirement to present amounts for each of the three classes of net assets—unrestricted, temporarily restricted, and permanently restricted. To prepare a proper balance sheet presentation, export the balance sheet to Excel and manually change the net asset section to report the amounts by class. 4

Tracking Volunteers Most nonprofit organizations rely on volunteers. If volunteers need to be tracked separately from members, donors, and clients, they can be entered in the “Other Names List.” Volunteers that are already listed as members, donors, or clients will need to be entered with a slight name variation (use V for volunteer at the end of the name or enter a middle initial). Custom fields and jobs cannot be added like they can on the “Customer:Job List,” but the notes option is available. To add a volunteer to the “Other Names List” from the “Lists” menu, select “New” from the “Other Names” menu button. Enter the name and other contact information. Notes can be added from the “Edit Name” window.

Receiving Cash Donations Nonprofit organizations that receive donations that were not invoiced may enter them in QuickBooks either as a deposit or a cash sale. However, deposits do not allow users to track items (the account is entered rather than the item) or generate a cash receipt. Consequently, such donations generally should be entered as cash sales. To enter a cash sale, select “Enter Sales Receipts” from the “Customers” menu. Select the “Custom Sales Receipt” or any other sales receipt template. (See paragraph 702.22 of PPC’s QuickBooks Solutions Guidefor customizing templates.)

Recording Donated Goods and Services Nonprofit organizations often receive donated goods and services. Donated goods should be recorded as revenue and as inventory or expense (whichever is appropriate) at fair value in the period they are received. Donated services should be recorded at fair value if the services (a) create or enhance a nonfinancial asset or (b) involve specialized skills, provided by entities possessing those skills, that would be purchased if they were not donated. Donated services are recorded as revenues and as additions to nonfinancial assets (if related to a nonfinancial asset) or expense.

The best way to record donated goods and services in QuickBooks is through a journal entry. To record a journal entry, select “Make General Journal Entries” from the “Company” menu.

Recording Promises to Give (Pledges) A promise to give is a written or oral agreement by a donor to contribute cash or other assets to the organization. A promise may be conditional (that is, contingent upon the occurrence of specified future events) or unconditional. Recording promises to give in QuickBooks varies depending on whether the organization keeps its accounting records on the accrual or cash basis of accounting as follows:

a. Accrual Basis. Accrual-basis organizations recognize unconditional promises to give in their financial statements when the promises are made. Thus, they should record unconditional promises to give in QuickBooks using an invoice when the promise is made.

A conditional promise to give is recognized when the conditions upon which it depends are met (or there is only a remote possibility they will not be met). Conditional promises to give should be recorded in QuickBooks as pending invoices so that they may be tracked, but not posted as revenue. (Pending invoices are not posted to the register—and thus reported as income—until they are marked final.) To create a pending invoice, create an invoice as normal and choose “Mark Invoice As Pending” from the “Edit” menu. To review a report of conditional promises to give, choose “Reports,” “Sales,” and then “Pending Sales” from the menu bar. Once a conditional promise to give meets the criteria for recognizing it as revenue, record the invoice by simply displaying it and choosing “Mark Invoice As Final” from the “Edit” menu.

b. Cash Basis. Cash-basis organizations record promises to give when the contribution is received. However, cash-basis organizations still should create an invoice for a promise to give when the promise is made so that it may be tracked in QuickBooks. (QuickBooks does not record invoices of cash-basis organizations as revenue. Revenue is recorded only when the cash receipt is recorded.) Later, cash-basis organizations should record the receipt of the promise to give against the invoice by selecting “Customers” then “Receive Payments” from the menu bar and filling in the requested information. (Be sure to apply the receipt to the appropriate invoice.)

Tracking and Collecting Membership Dues Organizations may charge membership dues monthly, based on a rolling calendar, or based on a calendar year. Rolling calendar memberships expire in a year and are due on or near the anniversary date. Calendar year memberships are prorated for the remaining time in the year and all memberships are due at the same time.

Calendar year memberships may be set up in QuickBooks using service items for each month of the year with a prorated rate. (For example, if annual dues are $240, the amount for January’s service item would be $240, the amount for February’s service item would be $220, and so on.) Rolling calendar and monthly memberships may be set up with a single service item. (Setup of items is discussed in paragraph 702.6 of PPC’s QuickBooks Solutions Guide.)

QuickBooks can memorize an invoice and remind the user to send renewal notices. After the invoice is created, select “Memorize Invoice” from the “Edit” menu. The user can click “Remind Me” and the “How Often” drop-down list will appear. Choose the period to be reminded. (See paragraph 207.16 of PPC’s QuickBooks Solutions Guide.) Memorized transaction groups also can be created by month to track memberships due in a particular month.

Customizing Sales Forms Invoices, estimates, statements, or any sales form can be customized in QuickBooks. Fields can be added, changed, or deleted by choosing “Templates” from the “Lists” menu. A new template can be created or an existing form can be duplicated and then modified. Logos may be added by checking the “Use logo” checkbox in the “Basic Customizations” window. Click the “Use logo” checkbox, and select the path of the bitmap file (.bmp). The organization’s phone number can be added to the form by checking the “Phone Number” checkbox to display the field. Alternatively, the organization’s phone number can be added to the “Address” field by selecting “Company,” “Company Information” from the menu. Some other changes nonprofit organizations may want to make are as follows: 5

Customizing Sales Receipts. The “Custom Sales Receipt” template may be copied, or the original template may be edited for a donation receipt. Click on the “Additional Customization” button. Then, on the “Header” tab, change the “Default Title” to “Donations Receipt,” the “Sale Number” to “Receipt No.,” and the “Sold To” to “Donor.” On the “Columns” tab, remove the “Qty” and “Rate” columns. On the “Footer” tab, uncheck the “Subtotal” and “Sales Tax” fields.

Customizing Invoices for Pledges. If the organization sends reminders for pledges, copy the “Intuit Professional Invoice” template. Click on the “Additional Customization” button. Then, on the “Header” tab, change the “Default Title” to “Pledge,” the “Invoice Number” to “Pledge No.,” and the “Bill To” to “Donor.” On the “Columns” tab, the quantity and rate columns may be turned off the form. Statements can be customized in the same manner by duplicating and modifying the “Intuit Standard Statement” template.

Reporting Reports can be exported to Excel for modification and are discussed further beginning in paragraph 403.52 of PPC’s QuickBooks Solutions Guide. 6 A few reports that may be useful to nonprofit organizations in addition to the standard profit and loss reports are as follows:

Overhead as a Percentage of Total Expenses. Often, nonprofit organizations will need to report overhead as a percentage of total expenses. This can be accomplished by selecting the “Profit & Loss by Class” report (select “Company & Financial” from the “Reports” menu), clicking on the “Modify Report” button, and selecting add a subcolumn for “% of Row” in the “Display” tab.

Promises to Give (Pledges). If pledges are identified as pending invoices, select “Sales” and “Pending Sales” from the “Reports” menu.

Donations and Grants. Donors may need a year end or periodic report. A custom report may be created that will work with the make deposit and sales receipt methods of receiving cash. Choose “Custom Summary Report” from the “Reports” menu. Modify the report to display columns by “Total only,” “Class,” “Item type,” or any other field and display “Customer” for rows. For example, selecting “Total only” will display total donations by customer.

Revenue and Expense Classifications. All transactions should be assigned a class (see discussion beginning at paragraph 702.12 of PPC’s QuickBooks Solutions Guide). To determine whether there are unassigned transactions, create a report of transactions by class choosing “Custom Summary Report” from the “Report” menu. Choose “All” from the “Dates” drop-down list on the “Display” tab, and from the “Display columns by” drop-down list select “Total only.” Finally, select “Class” from the “Display rows by” drop-down list. Transactions appearing in the unclassified category should be investigated and assigned to a class if necessary.

Budgeting. Budget reports are available by choosing “Budgets” (or “Budgets & Forecasts” in QuickBooks Premier, Premier-Accountant, and Premier-Nonprofit) from the “Reports” menu. Choose the report (Budget Overview, Budget vs. Actual, Profit & Loss Budget Performance, or Budget vs. Actual Graph) and use the “Budget Report” wizard to create the budget and layout. To create a “Profit & Loss Budget Overview” report, the user should select “Budget Overview” from the “Reports” menu and in the “Budget Report” wizard select “Profit & Loss by Account” for the applicable year. Next, select the report layout for the budget and click “Finish” to finish the report.

Sales Report by Item or Customer. Amounts for services, other charges, inventory, or any other items may be printed by item or customer, in detail or summarized. From the “Reports” menu, choose “Sales” and the appropriate report.

Additional report templates are available for download for QuickBooks Pro, Premier, Premier-Accountant and Premier-Nonprofit users. Select “Lists,” “Templates” from the menu, click on the “Templates” button, and select “Download Templates” to open the Internet browser. (See the discussion beginning at paragraph 501.16 of PPC’s QuickBooks Solutions Guide.) Some of the reports that are available for nonprofit organizations are —

Contributions by Donor. Lists the total contributions made by each donor.

Organizational Budget by Program. Provides an overview of the organization’s budget.

Overhead as Percentage of Total Income and Expenses. Provides an overview of how well the organization is meeting its budget goals.

Integrated Applications The prior discussion provides solutions to common problems, but nonprofits often need specific industry applications in addition to QuickBooks. Intuit realized certain industries have unique needs and opened the QuickBooks source code to software developers so that they could develop specialized industry software that integrates with QuickBooks Pro, Premier, Premier-Accountant, and Premier-Nonprofit. Integration allows data (e.g., donations, member, or financial) to be shared. When specific third-party applications are integrated with QuickBooks, the data sharing can help save time by eliminating repetitive data entry and increasing data accuracy. A list of third-party software applications for nonprofits that integrate with QuickBooks is available at http://marketplace.intuit.com. (See the discussion beginning at paragraph 504.1 of PPC’s QuickBooks Solutions Guide for further discussion of integrated applications.)

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1 The QuickBooks Premier-Nonprofit edition is designed specifically for nonprofit organizations. It has additional features that streamline accounting for fundraising efforts. It also includes specialized reports for the nonprofit industry, including a “Statement of Functional Expense” report and includes a chart of accounts designed specifically for nonprofits. It also includes a “Nonprofit” menu that gives users instant access to key activities and reports. For more information on QuickBooks Premier-Nonprofit, refer to http://quickbooks.intuit.com.

2 If a budget currently exists, the most recent budget will be displayed in the “Set up Budgets” window. To create a new budget, click the “Create New Budget” button in the right hand corner.

3 Most nonprofit organizations use the term “statement of financial position.” The authors use “balance sheet” to be consistent with the QuickBooks terminology.

4 The Intuit Statement Writer is an optional add-on included in QuickBooks Premier-Accountant. The practitioner can use the Intuit Statement Writer to format the financial statements to prepare a proper balance sheet presentation. See discussion at section 403 of PPC’s QuickBooks Solutions Guide.

5 QuickBooks has downloadable templates for various forms (e.g., email pledge forms and background color changes for some forms). See the discussion of downloading templates at paragraph 702.24 of PPC’s QuickBooks Solutions Guide.

6 The Intuit Statement Writer, an optional add-on within QuickBooks Premier-Accountant, also enables the practitioner to modify financial statements. See discussion at section 403 of PPC’s QuickBooks Solutions Guide.

4 comments:

Stephie Daniel said...

Quickbooks has now come up with a numerous ways for customization. Thus for an organization its always been preferred to have quickbooks time tracking software for better management of time of working employees in the organization.

In our company we have been using the one from Replicon:- http://www.replicon.com/olp/quickbooks-time-tracking-solutions.aspx

What is your thought about this one?

Kenneth Reid said...

Stephie,

I am not familiar with Replicon or their software. If it works for your purposes, I would say continue to use it.

Intuit used to have a timer program (ProTimer) that came with the QuickBooks software. This timer program was discontinued with the 2011 software release.

Anne Gandini said...

Do you have experience creating a note to the financial statements regarding pledges?

We would like to separate future year pledges from the balance sheet and post them as a note instead.

Kenneth Reid said...

Anne, I do not have any experience in working with non-profits that receive pledges. I am not able to help you with this matter.