Customizing Reports in QuickBooks Online for Nonprofit Accounting
- Melton Liggett
- Sep 8
- 3 min read
How Classes, Projects, and Locations Work Together to Build a Statement of Functional Expenses — and Where Categories Fit In
Setting up your books the right way is just the beginning. The real value comes when you can actually understand what your reports are telling you — and share those insights with your board, funders, or staff. In this week’s post, we’re talking about how to use the structure you’ve built in QuickBooks Online to generate smarter, clearer reports — starting with a nonprofit essential: the Statement of Functional Expenses.
What Is a Statement of Functional Expenses in Nonprofit Accounting?
If you’re a nonprofit, you’ve probably seen this report on Form 990 or requested by a funder.
It breaks down your expenses by:
Natural category (what was purchased — e.g., salaries, supplies, rent)
Function (why it was spent — Program, Admin, or Fundraising)
In plain English: it shows what you spent and why you spent it.
Example:
How to Build That Report in QBO (Using Classes)
You’ve already set up Classes to track your functional areas:
Program Services
Management & General (a.k.a. Admin)
Fundraising
Now you just need to apply those classes to every expense transaction — ideally at the line item level.
Then:
Go to Reports
Search for Profit and Loss by Class
Set the date range (e.g., fiscal year)
Customize the report:
Add columns for Classes
Make sure “Rows/Columns” are set to Classes
Filter by expense accounts only (optional)
Click Save Custom Report so you can access it monthly or quarterly
This is your Statement of Functional Expenses — without needing a separate spreadsheet.
For Nonprofit Accounting, why This Beats a Spreadsheet
It pulls data directly from transactions (no re-entry)
It automatically updates as new expenses are added
It gives you clarity for internal decisions — not just compliance
And if your board is asking questions like “How much did we spend on fundraising last year?” — this report will answer them in seconds.
Where Projects and Locations Fit In
While Classes drive the functional report, don’t forget:
Projects tell you how specific grants or programs are performing (within the Program class)
Locations let you separate restricted vs. unrestricted funds for donor and funder reports
Recommended Pairing for Reporting:
So… What About Categories?
Good question — and one that trips up a lot of QBO users.
🔸 What Categories Are:
Tags you can apply to products and services
Help organize items for sales and purchases
🔹 What Categories Are Not:
They are not used in financial reporting (like Classes or Locations)
They do not appear on the P&L, Balance Sheet, or functional reports
Best Use of Categories:
Use them in the Products and Services list to organize purchases by type, vendor, or use case.
Example:
Category: “Office Supplies”
Item: “Copy Paper”
Item: “Printer Ink”
Category: “Food Program Supplies”
Item: “Canned Goods”
Item: “Meal Kits”
They make data entry cleaner and help you keep your product list organized — but they won’t impact your financial statements.
Recommendations for Smarter Reporting
Use Classes on all expense transactions — especially split entries like payroll or shared bills
Use Projects for anything grant-funded, seasonal, or program-specific
Use Locations on all donations (restricted and unrestricted)
Customize reports, save them, and schedule monthly check-ins
Don’t overuse Categories — keep them tight and meaningful
Bottom Line
If you’ve taken the time to set up your QuickBooks Online file using Classes, Projects, and Locations — great! Now let it work for you.
With just a few clicks, you can build a Statement of Functional Expenses that’s clear, accurate, and ready for board meetings, audits, or funder reports. This makes nonprofit accounting using QBO a breeze!
Want help building the reports your board actually wants to see?
Let’s customize QBO so it speaks your language. Contact me here to get started.
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