How Do I Record A Grant In QuickBooks Desktop/Online?

Grants play a crucial role in sustaining nonprofit organizations’ operations, as they offer crucial funding for initiatives that benefit the community. Properly managing grant revenue means detailed financial reporting and demonstrating the prudent use of funds and compliance with the terms that the grant provider sets. In this article, we will explain how to record a grant using QuickBooks. 

What Is a Grant?

A grant is a financial contribution provided to non profit organizations for particular projects or programs. Accounting for grants is important in managing the funds and ensuring compliance with financial standards. 

Proper grant management not only ensures that the funds received are put to the right use, but it also strengthens the organization’s accountability and credibility with donors, grant providers, and the public. This level of transparency fosters trust and demonstrates that the nonprofit is utilizing its resources effectively and in alignment with the terms of the grant.

Nonprofit accounting, which involves detailed tracking and allocation of grant funds, is crucial in maximizing the positive impact of the grants. By accurately managing these funds, nonprofits can sustain their operations, advance their mission, and deliver long-term benefits to the communities they serve. Furthermore, successful grant management supports the organization’s financial sustainability, enabling it to secure future funding and continue delivering on its objectives.

Why Is It Important to Record Grants in QuickBooks?

Recording grants in QuickBooks is essential for keeping accurate financial records and ensuring that grant funds are used correctly for specific programs. By properly tracking your grants, you can maintain compliance with fund regulations, provide clear reports to stakeholders, and ensure full accountability for how funds are spent.

QuickBooks offers integrated grant management tools that make it easy to track disbursements, allocate budgets, and monitor expenses. For example, you can use class tracking to categorize grant-related income and expenses, or set up specific fund tracking categories to keep an eye on how each grant is being used.

Effective grant tracking isn’t just about compliance—it also helps you manage your organization more efficiently. With QuickBooks, you can generate reports that show where funds are going, identify potential cost-saving opportunities, and make sure resources are allocated where they’re needed most.

How To Record a Grant in QuickBooks Desktop?

You can record the grant as a deposit to your business account. Simultaneously, you can create a profile of the agency where the funds have appeared and the account to categorize the grant. Follow the steps mentioned below:

Step 1: Navigate to Make Deposit

First, go to Banking, then select the Make Deposit option. 

Step 2: Select the Account

Now, from the Deposit To field, select the account where the money goes in.

Step 3: Click the Add New option

Tap on the RECEIVED FROM menu and select the Add New option. 

1. Choose the Other name type and click OK. 

2. Then, enter the name of the organization that gave you the grant and hit OK.  For Example: US Government / SBA. 

Step 4: Select the FROM ACCOUNT

Click on the FROM ACCOUNT menu, then click on the Add New option. 

1. Now, choose Other Income from the Other Account Types drop-down menu. 

2. Then, choose the Continue option and name it something like COVID-19 Grant Income. 
3. Tap on the Save & Close option. 

Step 5:  Save the Changes

After this, enter a memo and the amount and click the Save & Close option.  

Although this deposit will appear under Other Income, it will be located in the Income section on your Profit and Loss report, thus lessening the total of your expenses. You may stop there.

If you want to decrease/reduce the total amount of the specific expense account in relation to the use of this grant, you can do so through journal entry. However, I advise you to consult your accountant on the specific accounts to use when preparing the report. 

How To Record Grants in QuickBooks Online (QBO)?

Recording the grants in QuickBooks Online is very crucial to make sure that the funds are accurately tracked and accounted for. This process will help keep the correct records of your finances and make sure that you are able to report the grant on your taxes correctly.

Follow the steps mentioned below to record a grant in QBO:

Step 1: Sign in to QuickBooks Online

1. Open your web browser and go to https://quickbooks.intuit.com.
2. Click on the “Sign In” button in the top-right corner of the homepage.

Step 2: Navigate to Create a New Transaction

1. In your QuickBooks dashboard, locate the “＋New” button on the left-hand menu or top menu bar.
2. Click the “＋New” button to open the drop-down menu.
3. From the drop-down options, select “Bank Deposit” under the “Other” category. This will take you to the bank deposit form.

Step 3: Select the Bank Account

1. At the top of the bank deposit form, find the “Account” drop-down field.
2. Click on the drop-down menu and select the bank account where the grant funds were deposited.
   • Ensure that this account matches where the grant income was physically deposited in your real bank.

Step 4: Record the Grant Income Details

1. Scroll down to the “Add funds to this deposit” section, where you will enter the details of the grant income.
2. Under the “Received From” column, enter the name of the organization or entity that awarded the grant.
3. In the “Account” column, select the appropriate account for categorizing the grant income.
   • You might want to use an account such as “Other Income” or create a specific “Grant Income” account depending on how you prefer to track it.
4. In the “Payment Method” column, you can select the method by which the grant was received (e.g., ACH, check, etc.).
5. Enter the amount of the grant received in the appropriate column.
6. Optionally, add a memo to describe the grant for future reference.
7. Review the total deposit at the bottom of the form to ensure accuracy.

Step 5: Save and Close

1. Once all the details are entered and you’ve confirmed everything is correct, click the “Save and Close” button at the bottom-right of the form.
   • Alternatively, if you plan to add more transactions, click “Save and New” to enter another deposit.

Step 6: Verify the Grant is Categorized Correctly (Optional)

1. After saving, you may want to verify that the deposit has been categorized as Other Income or under your preferred income category.

What Are the Common Mistakes to Avoid When Recording Grants in QuickBooks?

When you’re recording grants in QuickBooks, it is important to avoid some very common mistakes for accurate financial tracking and reporting. Whether you’re using QuickBooks Desktop or QuickBooks Online, there are common mistakes to avoid to maintain compliance and ensure proper grant management: Below are a few points that you should consider while recording Grants: 

Common Mistakes to Avoid in QuickBooks Desktop:

• Not Setting Up a Dedicated Grant Fund Account: In QuickBooks Desktop, not setting up a dedicated grant fund account is considered a mistake. This will affect fund management, financial controls, and efficient fund reconciliation processes for grants-related transactions. 

Best Practice:
Set up a separate fund account to track all grant-related income and expenses. This allows you to create clear financial reports and ensures compliance with grant requirements.

• Improper Expense Tracking : Failing to track grant-related expenses accurately in QuickBooks Desktop can cause discrepancies, leading to problems in financial reporting. You need to allocate each expense properly to avoid overspending or misallocation, which can jeopardize the grant. Other than control through tracking, detailed financial reporting is needed to ensure the members are aware of the association’s financial position. Some of these processes employ grant management software or grant tracking systems to enable the provision of appropriate and proper financial control of the grant and tracking of the grant expenses.

Best Practice:
Create detailed classes or customer jobs in QuickBooks Desktop to monitor expenses by grant. This ensures that all expenditures are aligned with the grant’s budget and requirements.

• Not Reconciling Grant Accounts Regularly : If you don’t reconcile the grant accounts regularly with QuickBooks, it will lead to discrepancies in fund reconciliation. Without reconciliation, there can be discrepancies between actual and reported figures, leading to potential audit issues and noncompliance with grant terms.

Best Practice:
Set a monthly schedule to reconcile grant accounts. Regular reconciliations help you catch errors early and ensure accurate fund tracking and reporting.

• Failing to Allocate Indirect Costs : If you forget to allocate overhead or indirect costs in QuickBooks Desktop, your financial statements may reflect incomplete project costs, leading to budget shortfalls and compliance issues.

Best Practice:
Use the allocation feature to apply indirect costs to the appropriate grant fund, ensuring that all project-related expenses are accounted for.

Common Mistakes to Avoid When Recoding Grants in QuickBooks Online:

• Not Setting Up a Separate Income and Expense Account for Each Grant : Unlike QuickBooks Desktop, QuickBooks Online may not have built-in features for fund accounting, so it’s crucial to create separate income and expense accounts for each grant. Failing to do this will lead to a lack of clarity in tracking how the grant funds are spent.

Best Practice:
Create a specific income account and an expense account for each grant you manage. This will allow for better tracking and reporting in QuickBooks Online.

• Improper Categorization of Transactions : In QuickBooks Online, miscategorising transactions related to grants can result in inaccurate financial reports. It’s easy to overlook the proper assignment of transactions when dealing with multiple funding sources.

Best Practice:
Set up clear categories for grant income and expenses in QuickBooks Online. Use tags or classes to distinguish between different grants and ensure accurate reporting for each.

• Neglecting to Reconcile Accounts Regularly : Just as in QuickBooks Desktop, not reconciling grant-related accounts regularly can create reporting errors in QuickBooks Online. Inconsistent reconciliation can result in compliance issues and difficulties when reporting to funders.

Best Practice:
Schedule monthly reconciliations in QuickBooks Online. This ensures that your financial records reflect the actual status of your grant funding and that no discrepancies go unnoticed.

• Not Utilizing Grant Tracking Features: While QuickBooks Online has fewer fund accounting features compared to Desktop, it does offer tools like “Tags” and “Projects” to help track grants. Failing to use these features can make it difficult to allocate and track expenses accurately.

Best Practice:
Utilize the “Projects” feature in QuickBooks Online to manage grants. This tool allows you to track income, expenses, and profitability by project (or grant) and provides a clear overview of how funds are being utilized.

Recording grants in QuickBooks is very important for maintaining accurate financial records, successfully managing grant funds, and tracking the utilization of grants for particular programs or initiatives.

FAQs:

What type of account is a grant?

A grant is typically recorded in a fund account within nonprofit accounting, a specialized approach used to manage financial transactions for nonprofit organizations. The grant account tracks both the funds received and the expenses associated with the grant. These funds are generally categorized as either restricted or unrestricted.

• Restricted grants are earmarked for specific purposes and must be used accordingly.
• Unrestricted grants can be used for general organizational needs.

Is grant received debited or credited?

When a grant is received, it is credited to the appropriate income account in the profit and loss statement, usually under “Other Income.” This reflects the grant as revenue. 

How should I account for grant money received, especially when it’s non-taxable?

For a grant like the EIDL advance, it’s common to initially record it in a liability account. This is because, until you confirm that the grant is not taxable or doesn’t need to be repaid, it should be treated as a potential liability. Think of the liability account as a temporary holding place.

Why should I use a liability account if the grant doesn’t have to be repaid?

Even if the grant is non-repayable, it’s safe to classify it as a liability initially because it may not be clear if the funds are taxable. Once confirmed as non-taxable, you can move the amount to an “Other Income” account via a journal entry to adjust for the income.

How to record non-profit grant in QuickBooks desktop?

To record a non-profit grant in QuickBooks Desktop, follow these steps:

Step 1: Create a Liability Account:

1. Go to the Lists menu and select Chart of Accounts.
2. Click the Account button at the bottom left and select New.
3. Choose Other Current Liability as the account type to track restricted grants (grants that have conditions to be met).
4. Name the account (e.g., “Restricted Grants”) and save.

Step 2: Create an Income Account:

1. Go back to the Chart of Accounts.
2. Click the Account button and select New.
3. Choose Income as the account type for unrestricted grants or for when the grant funds are released.
4. Name the account (e.g., “Grant Income”) and save.

Step 3: Create a Service Item for the Grant:

1. Go to the Lists menu and select Item List.
2. Click the Item button at the bottom and select New.
3. Choose Service as the item type.
4. Name the item (e.g., “Grant Funds”).
5. In the Income Account field, select the Liability Account you created earlier (for restricted grants) or the Income Account for unrestricted grants.

Step 4: Record the Grant as a Liability (if restricted):

1. Go to the Customers menu and create an Invoice or Sales Receipt to record the grant.
2. Choose the Customer associated with the grant (you can create one for the grantor if necessary).
3. Select the grant Service Item you created.
4. Save the transaction, which will now record the grant as a liability.

What if I have to repay the grant?

If the grant is later found to be repayable, keep it in the liability account and adjust accordingly when repayments are made. This approach is useful for grants like PPP loans that might need forgiveness.

How to Create a Grant Item in QuickBooks?

Here’s how to create a grant item in QuickBooks:

1. Go to the Items List: In QuickBooks, navigate to the “Products and Services” section under the gear icon.
2. Add a New Item: Click “New” and select “Service” or “Expense” depending on the nature of the grant (e.g., if it’s income or an expense).
3. Assign a Category: Link the item to the appropriate account (income or expense) to ensure it’s recorded correctly in the Chart of Accounts.
4. Create a Grant-Specific Class or Project: For better tracking, you can set up a class or project to differentiate between restricted and unrestricted funds, or to track specific grants.
5. Save the Item: After filling in necessary details, save the item for use in future transactions