Tracking and Recording Restricted Funds in QuickBooks Online
- Melton Liggett
- Aug 12
- 2 min read
Updated: Aug 17
If your nonprofit receives donations, manages grants, and runs programs, your accounting needs to show not just what you spent — but how, why, and under what restrictions. QuickBooks Online (QBO) gives you three powerful tools to make this possible: Classes, Projects, and Locations. Here's how (and why) to use them together for better clarity and compliance.
Start With Classes to Track Functional Expenses
Classes are the foundation for functional expense reporting, a nonprofit requirement — especially on Form 990. These classify how funds are used, not what was purchased.
Use Classes to Track:
Program Services – The mission-based work you do
Management & General (Admin) – Overhead, bookkeeping, HR, insurance
Fundraising – Campaigns, donor events, appeal mailings, development staff
Classes answer: “What function did this expense support?”
Sub-Classes: Add More Detail Under Each Functional Area
Sub-classes let you break things down without cluttering your Chart of Accounts.
Example:
Program Services
↳ Youth Outreach
↳ Housing Assistance
Management & General
Fundraising
This lets you run:
Profit & Loss by Class
Statement of Functional Expenses
Internal reports for boards and funders
QBO Classes = nonprofit functional tracking, done right.
Use Projects to Track Grants and Programs
Once you’ve tagged transactions by function, zoom in with Projects to track specific grants or initiatives.
Use a Project to follow the full financial life of:
A government or private grant
A seasonal program (e.g., summer camp, after-school tutoring)
A capital improvement or special event
Projects answer: “How is this specific grant or program performing?”
What You Get with Projects:
Grant-level income and expense tracking
A real-time profit/loss dashboard per program
Reports for grant compliance, reimbursements, and renewals
Better insight into whether your programs are running at a surplus or deficit
Projects can be linked to a functional class (usually Program Services) for full visibility.
Use Locations to Track Donation Restrictions
Set up your Locations like this:
Donations With Restrictions
Donations Without Restrictions
Then tag incoming donations accordingly.
Benefits of Using Locations:
Run Profit & Loss by Location to see how restricted funds were used
Track income by fund without creating separate income accounts
Show donors and auditors that funds were used according to restriction
Locations answer: “Was this donation restricted or unrestricted?”
How It All Works Together
Here’s how these tools fit in a real-world scenario:
Bottom Line
For nonprofits that want clarity, compliance, and clean reporting, QuickBooks Online offers the perfect mix of tools — if you know how to use them:
Use Classes for functional areas like Program Services, Admin, and Fundraising
Use Projects for specific grants and programs
Use Locations to track restricted vs. unrestricted donations
Want help setting up this structure in your QBO file?
Let’s make sure your system is telling the full story — clearly and compliantly. Contact me here and let’s talk.
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