QuickBooks Restricted Funds: How to Set Up & Track Restricted Funds in QuickBooks?

QuickBooks Restricted Funds: How to Set Up & Track Restricted Funds in QuickBooks?

A QuickBooks Restricted Funds refer to any cash that has been designed for a particular purpose or limited use. It is often associated with the funds that are held by donations to the endowment or nonprofit organizations. If you are willing to account for the restricted funds, QuickBooks offers numerous ways to do this. Through the Class Tracking feature, bank account, and sub-bank account, it becomes easy to set up and track restricted funds in QuickBooks.

Apart from this, you can transfer the Restricted Funds account into the General Funds account. This should be noted that unauthorized use of the restricted funds or failure to comply with the restrictions can result in legal action.

What are QuickBooks Restricted Funds?

A restricted fund is basically a reserve account. It contains cash that can be used only for specific purposes. In addition, restricted funds are often associated with the funds held by endowments, insurance companies, and non-profit organizations. QuickBooks restricted funds offer reassurance to the donors that the contributions are being used in a way they have decided.

How Do I Account for Restricted Funds in QuickBooks?

Although QuickBooks users don’t have the direct option to monitor the restricted funds, some alternative ways can still be used to set up and track the QuickBooks restricted funds.

For instance, you can proceed with accounting for restricted funds in QuickBooks through the Class Tracking feature. Besides that, you can create a bank account and sub-bank account for recording restricted funds in QuickBooks.

Method 1: Managing Restricted Funds using Class Tracking Feature

To track the restricted funds, you can use the Class Tracking feature. This will help you to assign the restricted funds to the class. Thereafter, you can run the restricted funds report. When you do so, you can choose the particular filter to return the restricted funds in the register.

Step 1: Enable the Class Tracking Feature

First of all, you will have to enable the Class Tracking feature in QuickBooks. This will allow you to add the custom classes for each type of donation in QuickBooks. To do so, open the Edit menu. Then, go to the Preferences tab and Accounting menu respectively. After this, turn on the class tracking feature from the Company Preferences tab.

  • Go to the “Edit” option located on the top.
  • Then, scroll down and choose the “Preferences” option.
  • Now, click the “Accounting” option.
  • Switch to the “Company Preferences” tab.
  • Mark the “Use Class Tracking” checkbox. If required, you can save these settings and close the screen.

Step 2: Add the Custom Classes

Once the class tracking feature is enabled, you are ready to set up the class for every type of donation. Remember that unrestricted funds will be general donations used for your general funds budget. Restricted Funds will be another class.

To add the custom classes in QuickBooks, you can open the Class List from the Lists menu. Then, add the new class using the drop-down option, and enter relevant details. Make sure you set up a class for every main group, create sub-classes, and then add the parent class as well.

  • Go to the “Lists” menu.
  • Click on the “Class List” option.
  • Here, click the “Class” drop-down option.
  • Choose the “New” button.
  • Now, type the name of your class. For instance, if you prefer to set up the single restricted funds group then add the subgroups of the restricted funds’ types and type “Restricted Funds”.
  • Once done, you can set up the class for every main group of your company. You can also create the class to track office locations, departments, charities, general funds, restricted funds, and other transaction types you wish to track.
  • Then, set up the subclasses. For this, you can follow the same process for adding the class.
  • Later, you can mark the “Subclass Of” checkbox.
  • Now, add the name for the parent class.
  • Once done, hit the “OK” button. This will successfully record the custom classes.
  • In case you want to add more classes, press the “Next” button and continue following the aforementioned steps.

Step 3: Run the QuickBooks Restricted Funds Report

By running the Profit and Loss by the Class report, you can choose the particular class filter so you can return the restricted funds only in the register. To run this report, you are required to open the Reports menu, choose the Profit & Loss by the Class report from the Company & Financial tab.

  • Click on the “Reports” tab.
  • Then, click the “Company & Financial” option.
  • Press the “Profit & Loss by Class” report.
  • Hit the “OK” button.

As you perform these steps, the restricted fund’s report will start running. This will let you choose the particular filter to return the restricted funds in the register.

Method 2: QuickBooks Restricted Funds Accounting using Bank Account

To set up the restricted accounts through a bank account, you just need to open a separate bank account for each of your restricted funds. Thereafter, you can set up the income account with the appropriate name. Later, you can prepare the deposit to add the restricted funds to the appropriate bank account.

Step 1: Add a New Bank Account

By creating a separate bank account, you can record the restricted funds. To create the bank account for each project, you can go to the Lists menu, open the QB Chart of Accounts menu, and add a new bank account. Make sure you enter the details precisely such as account name.

  • Click on the “List” menu.
  • Then, scroll down the options and press the “Chart of Accounts” option.
  • Press down the “Ctrl + N” keys together. This will launch the “Add New Account” window.
  • Click the “Bank” option.
  • Hit the “OK” button.
  • Here, you can enter the name of the account based on the purpose. For example, “First Bank for Restricted Funds” or “First Bank for Unrestricted Funds”.

Step 2: Set Up Two-Income Accounts

After preparing the bank account, you need to create the two-income accounts in QuickBooks. To do so, you need to open the QB Chart of Accounts and add an account for income. The name of the account should be entered correctly based on the purpose of this account.

  • Click the “Chart of Accounts” option.
  • Press down the “Ctrl + N” keys together.
  • Click the “Income” option.
  • Hit the “OK” button.
  • Here, you can enter the name of the account based on the purpose. For example, “Restricted Funds Received” or “Unrestricted Funds Received”.

Step 3: Make a Deposit

When you are ready with the bank account and income account, you can move forward to deposit the restricted funds into the relevant bank account. For that, you will have to select the Make Deposits and then start adding the relevant details such as donation amount, income account, and so on.

  • Choose the “Make Deposits” option. This will open a “Deposits” screen.
  • Here, you can enter the donor name, donation amount, and also add the income account to which the donation is being deposited.
  • Once done, you can press the “OK” button to record the deposit.

With these steps, you can set up the restricted funds using the bank account. All you have to do is create a bank account, set up an income account, and then add the deposit to the bank account with relevant information.

Method 3: Recording Restricted Funds in QuickBooks using SubBank Account

If you don’t find the option to set up multiple bank accounts, then you will have the option to set up the sub-bank account for every type of donation. To set up the sub-bank account for every type of donation, open the COA menu, add a new account, and enter the bank account name. Then, select the sub-account and assign it to the bank.

  • Click on the “Chart of Accounts” menu.
  • Then, choose the “Bank” option. This will open a “New Account” page.
  • Here, you can enter the name of your bank account. For example, “Restricted Funds”.
  • Press the “Sub-account of” checkmark.
  • Click on the parent bank account that you are using currently.
  • Then, assign the “Sub-bank account” to the bank.
  • At this point, you can deposit the donations to your “Sub-account”.

These steps will let you finish one bank reconciliation for the donation given and added into the one bank account. In case the donation is for unrestricted use then you have to add the deposit amount into your parent bank account.

How to Return the Restricted Funds to the General Fund Account?

Users can easily transfer the restricted funds between accounts if they are both displayed in the Chart of Accounts. It will let you add the money from the Restricted Funds account into the General Funds account. To transfer the restricted funds, you need to pick the appropriate bank account and enter the amount along with the correct date. If required, you can rearrange the Chart of Accounts in QB.

  • Press the “+New” menu.
  • Then, click on the “Transfer” button.
  • Here, choose the “Transfer Funds From” option and pick the bank account from where the funds are coming.
  • Now, click the “Transfer Funds To” option to choose the bank account into which you want to deposit the funds.
  • After that, go to the “Transfer Amount” section and add the amount you want to transfer.
  • Once done, change the “Date” for transferring the fund.
  • Click the “Save and Close” button.

This way you can transfer the amount from one account to another in QuickBooks. As you perform these steps, the amount appears in the General Funds account.

To Conclude

Non-profit companies use this fund for specific purposes. However, you can track it directly in QuickBooks. To make this possible, you can use the Class Tracking feature, create a bank account and sub bank account. These methods will help you to record accounting for restricted funds in QuickBooks. If required, you can transfer the Restricted Funds account into the General Funds account.

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