How is bookkeeping for nonprofits different?
Nonprofit bookkeeping tracks money by donor restriction as well as by account: restricted gifts are recorded apart from unrestricted funds and released as the restriction is met. The books feed grant reports and Form 990, which most tax-exempt organizations other than churches file every year. In QuickBooks Online, accounts carry the restriction and classes carry the program.
Bookkeeping for nonprofits uses the same debits, credits and bank reconciliations as any small business. Two things make it different, and both are where a bookkeeper trained on for-profit files goes wrong: whose money a gift is, and when a grant counts as revenue. Get those right and the rest of the work, from the board report to Form 990, comes out of the books instead of a spreadsheet.
The two things a for-profit bookkeeper gets wrong
Restricted money. A gift a donor limited to one program, or to a future year, is not available for the general budget. FASB’s ASU 2016-14 sorts a nonprofit’s equity into net assets without donor restrictions and net assets with donor restrictions, and the books must show which is which. A business file has one bucket for profit, so a restricted grant booked there looks spendable on the first report the board sees.
Grant timing. Under ASU 2018-08, a grant with both a barrier the organization has to clear and a right for the funder to take the money back is conditional. Cash received on it is a liability until the condition is met, not income. Plenty of cost-reimbursement government grants work this way, and booking the advance as revenue overstates the year’s results.
Four situations and the entry for each
These cover nearly every gift and grant a small nonprofit receives. Account numbers follow the nonprofit chart of accounts for QuickBooks, which has the full account list and an import file.
| Situation | Debit | Credit | Net asset class |
|---|---|---|---|
| Unrestricted gift arrives | 1010 Operating Checking | 4010 Individual Contributions | Without donor restrictions |
| Gift restricted to a program or a time period arrives | 1020 Restricted Funds Savings | 4040 Contributions With Donor Restrictions | With donor restrictions |
| Program spends restricted money, or the time period passes | 4040 Contributions With Donor Restrictions | 4900 Net Assets Released From Restrictions | Moves from with to without |
| Conditional grant advance arrives | 1010 Operating Checking | 2200 Refundable Advances (Conditional Grants) | None yet: a liability |
The release in the third row is the step most often skipped. Restricted money spent on the program it was given for has met its restriction, and the release records that, usually monthly. Without it, the statements show restricted funds that no longer exist and an unrestricted deficit that is not real. The chart post works the same $50,000 literacy grant through receipt, a $30,000 release and the year-end net asset entry QuickBooks does not make on its own.
Donated goods, space and professional services are a fifth case. They are recorded at fair value as both a contribution and an expense, with no cash involved. Volunteer hours are usually not recorded at all.
Online gifts arrive net of fees
Most gifts now come through a donation platform or card processor, which deposits the total less its fees. Record the gift at what the donor gave and the fee as an expense, so the deposit matches the bank:
| Account | Debit | Credit |
|---|---|---|
| 1010 Operating Checking | 970.00 | |
| 6900 Bank & Merchant Fees | 30.00 | |
| 4010 Individual Contributions | 1,000.00 |
Booking only the $970 deposit understates contributions, loses the fee line, and leaves the donor’s giving record $30 short of what they gave, which matters when the organization sends their acknowledgment letter.
The monthly close for a nonprofit
- Record gifts with the donor’s name and any restriction. Platform payout reports list each donor; post from them, not from the deposit total alone.
- Post restricted gifts to 4040 and conditional advances to 2200.
- Release restrictions for what each restricted program spent this month.
- Give every expense a class: a program, management and general, or fundraising. Split shared costs, like rent for one office, by a written method such as square footage or staff time.
- Reconcile every bank, card and platform account to its statement. How to reconcile in QuickBooks Online shows the steps.
- Check each grant’s spending against its budget, so the grant report is a report and not a reconstruction.
- Send the board the Statement of Activity and Statement of Financial Position, with restricted balances shown.
Step 4 is what makes Form 990 possible later. Part IX of the return asks for each expense by function (program services, management and general, fundraising), and a year of unclassed expenses cannot be sorted into those columns honestly in March.
What Form 990 needs from the books
Most tax-exempt organizations file an annual return, due by the 15th day of the 5th month after the year ends (May 15 for a calendar year). Which version depends on size, according to the IRS filing thresholds:
| Return | Who files it | What it asks the books for |
|---|---|---|
| Form 990-N (e-Postcard) | Gross receipts normally $50,000 or less | Almost nothing: basic identifying information |
| Form 990-EZ | Gross receipts under $200,000 and total assets under $500,000 | Revenue by type, expenses, a short balance sheet |
| Form 990 | Gross receipts of $200,000 or more, or total assets of $500,000 or more | Everything, including functional expenses and compensation |
Private foundations file Form 990-PF instead. At year end the preparer needs reconciled books, the statement of activities and financial position, expenses by class, a list of restricted balances by donor or grant, and officer compensation. The year-end bookkeeping checklist has the rest of the list.
QuickBooks Online or fund accounting software?
QuickBooks Online has no separate nonprofit edition. It has a nonprofit mode: under Settings, Account and settings, Advanced, edit Company type and set the tax form to the nonprofit Form 990 option, then sign out and back in. Intuit’s nonprofit setup article says invoices then read as pledges and the Statement of Activity and Statement of Financial Position reports appear. Class tracking, which a nonprofit needs, is on the Plus and Advanced plans only.
That setup works well for an organization with a few restricted grants and a handful of programs. Dedicated fund accounting software, such as Aplos or PowerChurch, is built around funds rather than classes, and is the better tool when an organization has many restricted funds that each need their own balance sheet, or an auditor who expects one. Neither choice fixes a missing release entry; the bookkeeping discipline is the same in both.
QuickBooks Online is not free for nonprofits. Intuit’s discounted nonprofit offer runs through TechSoup for eligible 501(c)(3) organizations with an annual administrative fee; check TechSoup for the current terms.
Bookkeeping for churches
A church keeps the same restricted and unrestricted split: a building fund or a missions offering is a restricted gift in all but name. Three things differ.
- No Form 990. Churches and conventions or associations of churches do not have to file the annual return. The books still need to support the board, the congregation’s annual meeting and any lender.
- Giving statements. A donor cannot deduct a single gift of $250 or more without a written acknowledgment from the church (IRC §170(f)(8)), so the giving record has to tie to the deposits. Most churches send every donor a statement in January.
- Ministers’ pay. A housing allowance has to be designated by the church before it is paid, and it is excluded from the minister’s income tax but not from self-employment tax (IRS Publication 517). A minister’s earnings for ministerial services are exempt from Social Security and Medicare withholding, and the minister pays self-employment tax on them instead. Record the housing allowance on its own expense line so the W-2 can be prepared correctly.
Small churches also benefit most from one control that has nothing to do with the software: two unrelated people count the offering, a third deposits it, and someone else reconciles the bank account.
How much nonprofit bookkeeping costs
Few nonprofit bookkeeping firms publish prices. The ones that do price by the organization’s annual revenue:
| Provider | Published price | Scope |
|---|---|---|
| Foundation Group | $350 a month | Revenue up to $200,000, up to 3 hours a month |
| Foundation Group | $500 a month | Revenue $200,000 to $500,000, up to 4 hours a month |
| Foundation Group | $650 a month | Revenue $500,000 to $1 million, up to 5 hours a month |
| Foundation Group | From $800 a month | Revenue over $1 million |
| Ledgerbrook | $199 a month | Class-tracked books in your own QuickBooks Online company |
Foundation Group’s prices were read on October 14, 2026, and it marks them as applying to most organizations. Larger organizations pay much more: GrowthForce puts the average price of outsourced nonprofit bookkeeping at about $2,000 to $3,500 a month, depending on transaction volume and the services included.
Ledgerbrook’s figure is its higher band, not its $99 entry price. A nonprofit’s books run on classes, and the higher band covers more than 3 accounts, more than 200 transactions a month, or class, location and multi-entity reporting.
Common questions
Do nonprofits need a bookkeeper?
They need the bookkeeping, done monthly, by someone who knows how restrictions work. In a small organization that is often a volunteer treasurer. It becomes worth paying for once there are restricted grants, payroll, or a Form 990-EZ or full Form 990 to file, because errors there show up in a public return.
What is the best accounting method for a nonprofit?
Accrual, if the organization prepares GAAP financial statements or has an audit, because pledges, grants receivable and conditional grants are accrual concepts. Many small organizations keep cash books during the year and have their accountant adjust at year end. Form 990 asks which method the organization used.
How do you pay yourself as a nonprofit founder?
As an employee, through payroll, at a salary the board approves as reasonable. A 501(c)(3) has no owners, so there is no owner’s draw, and IRC §501(c)(3) bars its net earnings from benefiting any private individual. Record founder pay as salary with a class, like any other staff cost.
Can ChatGPT do a nonprofit’s bookkeeping?
It can explain whether a gift is restricted or how a release works. It cannot read the grant agreement in your files, match a platform payout to its donors, or post the entries, so it is a reference for the person doing the books rather than a replacement.
Getting it done
If restricted grants were booked to general income, releases were never posted, or expenses have no classes, the history needs rebuilding before monthly bookkeeping can start. That is cleanup work at $99 per month of history.
Once the books are current, Ledgerbrook’s monthly bookkeeping keeps gifts, releases and classes posted every month, with statements by the 5th business day. Send your file for a free review and you get a written answer within 48 hours on what it needs and the fixed price, whether or not you hire us.
Published October 14, 2026