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QuickBooks for Nonprofits: by Mark Wilsdorf Revised: 4/21/2012
This paper shows a faster, easier, and more automated way to allocate income and expense from cost pool or "overhead" classes to other classes in nonprofit organizations (NPOs), using ManagePLUS Gold for QuickBooks. It demonstrates:
The examples in this paper are very visual (lots of screen shots), but they also (1) serve as partial user's guide for working with ManagePLUS Gold in a NPO, and (2) include specific examples related to the accounting requirements for NPOs working with Federal grants and contracts. So if you're only wanting a general idea of how ManagePLUS Gold might benefit the accounting processes in your organization, feel free to skip the technical details for now and "just look at the pictures". You can always come back for the details later.
Using Classes for Activity-Based Costing in Nonprofit Organizations
Deciding which class to assign when entering a transaction is simple in most cases. Donations received at your organization's booth during an annual charity event are fundraising income, and if you have a Fundraising class that's the one you'll choose when recording the receipt of those funds. But what about things like office rent? Printer and photocopy paper? Payroll expenses of your IT department? These may be related to all—or at least several—of the organization's programs and activities, not any specific one. When entering transactions for things like these, the usual approach is to assign them to any of several "cost pool" classes you've set up for gathering categories of non-program-specific costs, usually referred to as indirect expenses. For instance, you might assign the above-mentioned expenses to a Management & Governance class. Then at the end of the accounting period (month, quarter, year), you would allocate the amounts accumulated for Management & General to program- and activity-specific classes.
In QuickBooks, allocation is typically accomplished by:
Allocation frequently involves several receiving or "target" classes, so quite a few calculations may be necessary—you might need to allocate the Management & Governance cost pool among Fundraising, Member Development, Public Education, Habitat Restoration, Lobbying, etc. So steps 1 and 2 are typically done outside of QuickBooks, in a spreadsheet such as Microsoft Excel. Step 3 however, requires manually making JEs in QuickBooks, and is subject to the usual typing errors, transposition errors, and same old "debits vs. credits" confusion which can muddle data entry from time to time, especially for inexperienced accountants. This paper shows how to automate all three of these steps—yes, even the creation of JEs—with an inexpensive QuickBooks add-on called ManagePLUS Gold for QuickBooks. ManagePLUS Gold provides a quick, easy, approach for calculating and entering allocations, which is also more automated and less error prone than the common spreadsheet-and-Journal-Entry approach. For detailed information about the ManagePLUS Gold product, go here: http://www.goflagship.com/products/mphome.htm "How do I get started with activity-based costing?" This paper doesn't spend much time on either accounting theory or on ideas for setting up QuickBooks classes and accounts. A number of excellent resources are available as books, and as white papers, blog articles, etc. on the Web. One of the best of these is a paper by Christine L. Manor, CPA, titled Using Classes in QuickBooks to Track Activities. It is a free download available at several locations on the Web. Here's one of them: http://nccsdataweb.urban.org/kbfiles/309/manor-Using-classes-v4.doc Christine's paper is brief (15 pages), well written, and well worth printing out to use as a reference if you are getting started with accounting for a NPO. (Christine also has authored a book which may be helpful, QuickBooks for Not-for-Profit Organizations, though I have not yet reviewed it personally.)
QuickBooks itself also offers some assistance with accounting for a NPO. The sample QuickBooks company file for nonprofits has a broad range of transactions, plus a good example Chart of Accounts and Classes list to help you get started. And as you probably already know, a separate edition of QuickBooks is available for NPOs, called QuickBooks Premier for Nonprofits.
ABC and Federal grants and contracts If your NPO receives Federal grants or has Federal contracts, you must follow the accounting requirements defined in Office of Management & Budget Circular A-122 (http://www.whitehouse.gov/omb/circulars_a122_2004/). That document prescribes very specific ABC approaches you must use for allocating the organization's expenses to its programs and activities.
The rules in Circular A-122 are quite specific but most of them aren't anything unusual. The examples in this paper should help you with allocating expenses according to the Circular A-122 requirements. Examples To prevent accounting details from clouding your view of the basic allocation ideas, the examples in this paper are based on a simplified set of classes. You'll likely use a more comprehensive set of classes in your organization—the "real world" Classes list proposed in the Manor paper mentioned above has more than 30 classes in it, for example. And understand that these are contrived examples. Hopefully seeing a few numbers which don't appear to be realistic (because they aren't!) won't distract from the information being conveyed. The examples were built for simplicity, not reality. Glossary Definitions of few important terms:
Identifying activities divides the work within the organization into "chunks" which can be evaluated separately for management decision making ("Is our IT department cost effective, or should we consider hiring outside IT services?"). You'll normally set up a QuickBooks class for each major activity, so you can separately track the revenue and expense associated with it.
Their analog in the for-profit business world would be a profit center. While the goal is not profits in an NPO the concept is still similar, because programs represent the "output" of the organization.
Their analog in the for-profit business world would be a cost center or support center—areas of the business which don't directly produce an output of the business but are nonetheless necessary for the business to function. This publication is: Copyright © 2012 Flagship Technologies, Inc. All rights reserved. ManagePLUS and ManagePLUS Gold are trademarks of Flagship Technologies, Inc. QuickBooks and the QuickBooks logo and graphic images are trademarks of Intuit. |