How to Record a Donation in QuickBooks Desktop and Online?

Accurate and efficient donation tracking is essential for maintaining transparency and compliance in nonprofit financial management. Whether you’re managing monetary contributions, in-kind donations, or sponsorships, QuickBooks offers robust tools to streamline the process. This guide delves into how to record donations effectively in both QuickBooks Desktop and Online.

You’ll learn about the different types of donations—including cash, non-cash, and in-kind—and the steps to record them. From setting up a Charitable Contributions account and creating invoices to issuing credit memos and verifying transactions, we cover it all in simple, actionable steps.

Properly categorizing and tracking donations not only ensures accountability but also provides valuable insights for financial reporting, tax preparation, and donor transparency. Whether you’re a nonprofit or a business making charitable contributions, this comprehensive guide will help you manage donations efficiently in QuickBooks. QuickBooks provides you a feature to add donations for any charitable trust where it needs to be set up in QuickBooks itself.

What Are Donations or Charitable Contributions in QuickBooks?

Donations or Charitable contributions in QuickBooks refer to monetary or in-kind contributions received by an organization, typically a nonprofit, which are recorded and tracked for financial management purposes as it allows organizations to maintain accurate records of all incoming funds, ensuring transparency and accountability.

These contributions can come in various forms, including cash, checks, credit card payments, stocks, and even tangible goods like clothing or equipment. The main purpose of the contribution is to assist the nonprofit organization with a specific goal or benchmark.

Donations are recorded and tracked to monitor financial inflows and support. Whether it’s funding specific projects, covering operational expenses, or contributing to charitable initiatives, donations play a vital role in optimizing your financial resources and serving your beneficiaries effectively.

Why is it Important to Record Donations in QuickBooks?

Recording donations in QuickBooks is crucial for maintaining accurate financial records, ensuring compliance with accounting standards, and facilitating transparent reporting of all contributions received.

It allows organizations to track donations by source, purpose, and type, providing clear insights into financial inflows. By categorizing donations, nonprofit organizations can effectively demonstrate their financial stewardship to donors and regulatory authorities. Accurate categorization supports transparency and accountability, which are crucial for maintaining tax-exempt status.

What is the difference between a donation and a contribution?

How to Record Donation or Charitable Contributions in QuickBooks Online?

When you make donations or charitable contributions, how you record them depends on the type of donation you’ve made. Recording a cash donation is different from recording the donation of products or services that you normally sell.

For Cash donations

To donate cash, you can set up the charitable organization you’re donating to as a vendor so that when you make a donation, you can record it as a check or a bill and payment, just as you would for any other payment to a vendor.

However, make sure that the expense account you select from the Category drop-down list under the Category details section is a dedicated expense account for tax-deductible contributions. This account isn’t used for any other expenses, as this will make things easier for your accountant or tax prepare.

If you don’t already have an expense account for donations, you can select + Add new from the dropdown list under the Category column to add one when you record the donation.

For Donations of Products or Services Usually Sold by an Organization

To record a donation of products or services in QuickBooks, create an invoice, set up a Charitable Contributions account, add a product/service item, issue a credit memo, and verify its application to the invoice.

Note If the amount you’re writing off as a contribution will significantly affect your gross sales amount, consult your accountant before making this entry.

To record a product and services donation, adhere to the steps listed below:

Step 1: Create an Invoice for the products or services you donated

To start reconciling a donation, you must create an invoice for the product or service so that you can record the income. Don’t skip this step, or your balance will be affected when you perform the other steps in the process.

Step 2: Create and Setup an Account for Charitable Contributions (Donations)

If you want to make an account to use to record charitable contributions, follow these steps:

To set up a donation account in QuickBooks, follow these steps:

1. Access Chart of Accounts:
   • Go to Settings ⚙ in QuickBooks.
   • Select Chart of accounts.
2. Create a New Account:
   • Click on New to create a new account.
3. Choose Account Type:
   • In the Account Type dropdown, select Expenses.
4. Select Detail Type:
   • From the Detail Type dropdown, choose Charitable Contributions or an appropriate type that matches your needs.
5. Name the Account:
   • Enter a name for the account (e.g., “Donations” or “Charitable Contributions”).
6. Save the Account:
   • Click on Save and Close to finalize the creation of your donation account.

Once done with creating this account, the next step is to create a product/service item for donations.

Step 3: Create a Charitable Contributions Product/Service item

To create a product/service item for charitable contributions, go through the following steps:

1. Hover over Settings and then click on Products & services.
2. Click New.
3. Select the type of product or service under the Product/Service information panel.
4. After this, enter a Name for the item (like Charitable Contributions).
5. Tick-mark I sell this product/service to my customers checkbox.
6. Choose the Charitable Contributions account you created from the dropdown list in the Income account field.
7. Hit the Save and Close tabs.

Now, if you have created an account and a product/service item, it’s time to issue a credit memo for the value of your donation.

Step 4: Issue a credit memo

To issue a credit memo for the value of the products or services you’re donating, do the following:

1. Select + New.
2. Choose Credit memo under Customers.
3. Enter or select the Customer you donated the product or service to.
4. After this, click on the Charitable Contributions item in the  Product/Service column and then type the Amount of your donation as a positive number.
5. Write down Donation or Charitable Contribution under the Description field.
6. Hit the Save and Close icons.

The credit memo reflects the amount of your donation. After this, you are recommended to verify that it has been applied to the invoice you created.

Step 5: Check and Verify the credit memo was applied to the invoice

The final step is to authenticate that the credit memo you created has been applied to the invoice that you’ve created for the donated items. To confirm that the credit memo has been properly applied, adhere to the steps listed below:

1. Go to Sales, then select Customers.
2. Choose the customer you donated the product or service to from the list.
3. After this, verify that the Invoice transaction you created at the beginning of the process has a Status of Paid on the Transaction List tab.
4. Now, check that the Credit memo transaction you created is noted as Closed in the Status column.
5. Also, ensure that a new Payment transaction is listed, with US $0.00 listed in the Total column and Closed noted in the Status column.
6. Once done, the donation has now been correctly recorded.

How to Set up and Record In-kind Donations in QuickBooks Online?

An in-kind donation is a product, service, or asset donated to an organization. This can be printing services, office supplies, leased space, or professional services. It enables you to set up and record in-kind donations and other charitable contributions. Here’s how Set up and Record In-kind Donations in QuickBooks Online:

Note: Check twice with your accountant if a donation should be recorded as in-kind.

Set up In-kind Donations in QuickBooks Online:

To set up in-kind donations, first check for an existing in-kind donations account in your chart of accounts. If needed, create an in-kind donations account and a clearing account. Then, add a product or service item for each donation.

Follow the step-by-step information below:

Step 1: Check if you already have an in-kind donation account

Make sure you don’t already have an in-kind donation account in your chart of accounts to avoid duplicates.

1. Navigate to Settings, then select Chart of Accounts.
2. Now, enter In-kind donations in the Filter by name or number field. 
3. If no account is displayed, you can now create an in-kind donations account.

Note: If you see an account named “In-kind donations”, your chart of accounts is already set up, which means you don’t have to do anything.

Step 2: Create an in-kind donation Account

If you already have an in-kind donations account, you no longer need to create one, and you can easily skip this step. 

1. Hover over Settings, then choose a Chart of Accounts.
2. Click New.
3. Enter In-kind donations under the Account name field. 
4. After this, select Income from the Account type dropdown menu. 
5. Under the Detail type dropdown, choose the Non-Profit Income option.
6. Press Save at the end. 

Step 3: Make a Clearing Account

To keep track of your in-kind donations, create a clearing account. This helps you to record your in-kind donations’ sales receipts or bill payments.

Follow the steps listed below:

1. Go to Settings and then choose a Chart of accounts.
2. Hit the New tab. 
3. Type In-kind Clearing under the Account name field. 
4. Once done, select Bank from the Account type dropdown menu. 
5. In the Detail type dropdown, click on Checking.
6. Enter the opening balance amount under the Opening Balance field. Then, choose the starting date in the Date field.
   Note: The opening balance can be $0.
7. Press the Save button. 

Step 4: Create a Product or Service Item

Create a product or service item for each in-kind donation you receive and accurately track what you have. This allows you to record in-kind donation items to your books for a more detailed financial report.

Let’s see how:

1. Head to Settings and then choose Products and Services.
2. Press New and then click Service.
3. Enter the name, item type, and category of the item under the Basic Info section.
4. In the Sales section, select In-kind donations from the Income account drop-down.
5. After this, opt for I purchase this service from a vendor under the Purchasing section.
   Note: You can add your product description or purchase cost if required.
6. Click on the Create new option.

Record In-kind donations in QuickBooks Online:

To record in-kind donations in QuickBooks, create a sales receipt for the donation’s fair market value, then create a bill for the same amount, and finally mark the bill as cleared.

Follow the step-by-step information below:

Note: If you receive fixed assets like vehicles, computers, or land, use an expense or fixed asset account on the bill. You can consult with your accountant if you’re unsure about whether an item is a fixed asset or not.

Step 1: Create a sales receipt

1. Navigate to + New, and then choose Sales Receipt.
2. Select a customer from the Customer dropdown menu.
   Note: If you haven’t set up your customer yet, select + Add new.
3. Enter the date of the donation in the Sales Receipt Date field. 
4. After this, select the In-kind Clearing bank account that you created from the Deposit To dropdown. 
5. Under the Product/Service dropdown, select the in-kind donation item. Then, add a description in the Description field.
6. Type the fair market value (FMV) of the donation in the Amount field.
   Note: If you’re not sure about the fair market value of the donation, connect with your accountant.
7. At last, press the Save and close tabs.

Step 2: Create a Bill

1. Head to + New, then click on Bill.
2. From the Vendor dropdown menu, choose the donor’s name.
   Note: If you haven’t set up your donor’s name in the vendor list, select + Add new.
3. Select the in-kind donation item from the Product/Service dropdown under the Item details section. 
4. After this, enter the fair market value (FMV) of the donation in the Amount field.
   Note: Contact your accountant if you’re not sure about the fair market value of the donation. 
5. Hit the Save and Close tabs.

Step 3: Mark the Bill as Cleared

1. Go to + New and then choose Pay Bills.
2. Now, select In-kind Clearing from the Payment account drop-down menu.
3. Tick-mark the checkbox of the bill you entered.
4. Click Save and close.

FAQs:

How do I keep track of Fund Donations receive via credit card, bank transfer, or as cash in QuickBooks Online?

Managing fund donations in QuickBooks Online is straightforward when you set up your account properly. Here’s a simple guide:

Step 1: Adjust Your Account Type

If you haven’t already, update your QuickBooks Online account to a nonprofit organization type for better tracking.

Tip: Customize thank-you letters to send appreciation emails to your donors when issuing receipts or pledge confirmations.

Step 2: Create a Revenue Account

Set up a specific revenue account for tracking fund donations:

1. Go to your Chart of Accounts and create a new account.
2. Select Non-Profit Income as the detail type.
3. Name the account, e.g., “Fund Donations.”

If you already have a revenue account for this purpose, skip this step.

Step 3: Set Up a Fund Donation Item

To simplify tracking donations:

1. Create a non-inventory item in QuickBooks.
2. Name it “Fund Donations.”
3. Link this item to the revenue account created in Step 2.

Step 4: Add Donors as Customers

For each donor, add their information as a customer in QuickBooks.

Step 5: Record Donations

Scenario 1: As a Pledge (Donation Promised for a Later Date)

1. Record the pledge:
   • Go to + New > Pledge.
   • Use your donation template, select the donor, and add the donation item.
   • Save the record (and optionally email a receipt to the donor).
2. When you receive the donation:
   • Go to + New > Receive Payment.
   • Select the donor, payment date, and payment method.
   • Choose where the donation is deposited, check the pledge, and save.

How to Record non-cash charitable contributions in QuickBooks Online?

To record non-cash charitable contributions in QuickBooks Online, follow these steps:

Step 1: Create an Account for Non-Cash Contributions

1. Navigate to Settings ⚙️ > Chart of Accounts.
2. Select New to create an account.
3. Choose the following:
   • Account Type: Income (or Other Income, depending on your reporting needs).
   • Detail Type: Non-Profit Income (or Donations Received).
   • Name: Non-Cash Contributions.

Step 3: Record the Contribution

Depending on the type of donation, you can record it as a sales receipt or journal entry.

Option 1: Record as a Sales Receipt

1. Go to + New > Sales Receipt.
2. Select the donor as the customer.
3. In the Product/Service column, choose the “Non-Cash Contributions” item.
4. Enter the fair market value (FMV) of the donated item.
5. Add a description of the item in the Memo or Description field.
6. Save and send a receipt to the donor if needed.

Option 2: Record as a Journal Entry

1. Go to + New > Journal Entry.
2. In the first line:
   • Account: Non-Cash Contributions (income account created in Step 1).
   • Credit: Enter the FMV of the donation.
3. In the second line:
   • Account: Asset account (e.g., Fixed Assets or Inventory).
   • Debit: Enter the same amount as the credit.
4. Add a description for tracking purposes.
5. Save the journal entry.

Step 4: Track and Report

Ensure that all non-cash donations are documented, including donor details, FMV, and any supporting documentation, for tax reporting and audits.

How to Record a Donation or Charitable Contributions in QuickBooks Desktop?

When you make donations or charitable contributions, how much you record them totally depends on the type of donation you’ve made. For non-cash charitable contributions, you must create an invoice in QuickBooks desktop. After this, create an account to use to record charitable contributions from your Chart of Accounts. Then, create a product item for donations. From here, you need to issue a credit memo for the value of your donation.

Step 1. To create an Invoice

1. Navigate to the Customers menu and select Create Invoices.
2. From the Customer: Job drop-down, choose a customer or customer job. If the customer or job is not on the list yet, you can hit the Add New icon.
3. Now, add all the necessary information.
4. Press Save & Close.

Step 2. To make an account to use to record donations

1. Head to the Lists menu and select the Chart of Accounts.
2. Click on the Account drop-down arrow at the bottom of the window and hit the New tab.
3. Set Expenses as the Account Type and Press Continue.
4. Enter a Name for the account.
5. Then, choose Save & Close. 

Step 3. To create a product/service item for the donation

1. Hover over List at the top menu bar and choose Item List.
2. Click the arrow next to Item and then press New.
3. Now, select the Inventory Part under the Type section.
4. Use the account you’ve created from the drop-down list under the Income account field.
5. After this, add the needed details.
6. Hit the OK tab.

Step 4. To Issue a Credit Memo for the value of the products you’re donating

1. Choose Customers and then select Create Credit Memos/Refunds.
2. Then, enter the info for the credit memo or refund.
3. Press Save & Close when you’re done.

Bottom Line!

The accurate recording and categorization of donations and sponsorship’s in QuickBooks allows organizations to present a comprehensive and transparent picture of their financial activities. It also ensures that the donations are reported in compliance with generally accepted accounting standards. With this process, you can get up-to-date financial statements or reports and make informed decisions according to your business needs.

Frequently Asked Questions

Q 1. How do I record a cash donation in QuickBooks?

Ans. To record a cash donation in QuickBooks, set up the charitable organization as a vendor and enter the donation as a check or bill payment. Ensure the expense account selected is dedicated to tax-deductible contributions for easier tracking during tax preparation.

Q 2. Why is it important to create a Charitable Contributions account in QuickBooks?

Ans. Creating a Charitable Contributions account allows you to accurately record and categorize donations, ensuring proper financial reporting and tax compliance. This helps maintain transparency and accountability in your financial management.

Q 3. How do I record non-cash charitable contributions in QuickBooks Desktop?

Ans. In QuickBooks Desktop, record non-cash charitable contributions by creating an invoice for the donation, setting up a Charitable Contributions account, creating a product item for the donation, and issuing a credit memo for the value of the donated items.

Q 4. What type of account is charitable contributions in QuickBooks?

Ans. A charitable contribution in QuickBooks is recorded using an expense account, specifically a “Charitable Contributions” account.

Q 5. How do I record charitable donations in QuickBooks nonprofit?

Ans. Here’s a step-by-step guide to enter donations in QuickBooks for a nonprofit:

For Cash Donations:

1. Set up the charitable organization as a vendor:
   • Go to the Vendors menu and select “Add New Vendor then Enter the organization’s details and save.
2. Record the donation as a check or bill payment:
   • Navigate to the Banking menu and select “Write Checks” or “Enter Bills.” >> Choose the vendor you just set up.

For Donations of Products or Services:

1. Step 1: Create an Invoice for the donated items:
   • Go to the Customers menu and select “Create Invoices.” >> Choose the customer or job if applicable.
2. Step 2: Set up a Charitable Contributions Account.
3. Step 3: Create a Charitable Contributions Product/Service item:
   • Go to Settings and select “Products & Services.” >> Click “New” and choose the type (Product or Service).
4. Step 4: Issue a Credit Memo for the donation:
   • Navigate to the “+ New” menu and select “Credit Memo.” >> Choose the customer or job you donated to.
5. Step 5: Verify the Credit Memo was applied to the Invoice:
   • Go to Sales and select “Customers.” >> Choose the customer and check that the Invoice status is “Paid.”

How to record a sponsorship in QuickBooks Accounting Software?

To record a sponsorship in QuickBooks, follow these steps:

1. Create an Invoice: Start by creating an invoice for the products or services donated.
2. Create a Charitable Contributions Account: Set up an account for charitable contributions under the Expenses category.
3. Create a Charitable Contributions Product/Service Item: Set up a product/service item named “Charitable Contributions” and link it to the Charitable Contributions account.
4. Issue a Credit Memo: Create a credit memo for the value of the donation, using the Charitable Contributions item.
5. Verify the Credit Memo: Ensure the credit memo has been applied to the invoice and check that it shows as paid.

How Do I Report Charitable Donations in QuickBooks Desktop (QBDT)?

To generate a report that shows all invoices for your charitable donations in QuickBooks Desktop, you can use the Sales by Customer Detail report and customize it. Here’s a simplified process:

Step 1: Access the Purchases by Item Detail Report

1. Open QuickBooks Desktop and navigate to the Reports menu.
2. Select Purchases by Item Detail from the list of available reports.

This report will provide a clear view of all donation-related invoices for better tracking and financial management.

Step 2: Customize the Report

1. Once the report is open, click the Customize Report button at the top of the window.
2. The Modify Report window will appear, allowing you to tailor the report for your needs.

Step 3: Adjust Columns for Display

1. In the Display tab, locate the Columns section.
2. Check the box for Paid to include the payment status of each transaction in the report.
3. Review the selected columns to ensure all necessary details are included for tracking donations.