Nonprofit – QuickBooks – How to record an expense that a donor pays directly.
Like many nonprofits, we use Quickbooks to manage our books. Making Quickbooks record things correctly can be a challenge when you are managing a nonprofit. QB is created for small for-profit businesses and “donations” don’t really exist in QB by default. However, you can make it work.
I recently had a problem recording an expense that a donor (board member) paid directly. It seems to make sense that this happens a lot in a nonprofit QuickBooks environment. I had a hard time keeping track of the expense for the organization without writing a check from the bank account. It turns out that there is a trick to recording the expense and having it paid in a way that doesn’t hit the bank account.
I’m not an accountant and do not take this as bookkeeping advice.
Note: Some of this answer was pulled from the Quickbooks support page here. (Steps 2 & 3) It is not a full solution, however.
Step 1
Ok, so the instructions below from QB support only get you part of the way there. You will end up with an outstanding bill on your books. I solved this by creating a petty cash account in QuickBooks as a “BANK” account. This allows you to “pay” the bill from the cash account (step 3). It also gives you an account to credit when you issue the “sales receipt” in step 2. After completing steps 2-4, below, this account will have a net zero ($0) change; it’s only used as a clearing account.
According to the Accounting Coach dictionary, a clearing account is: “A general ledger account which serves to summarize similar transactions.”
Step 2
First off, you’ll have to set up the donors as customers in the Customer Center to track the fund donations and donated items. Here’s how:
- Go to the Customers menu, then select Customer Center.
- At the top of the Customer Center, click the New Customer & Job drop-down arrow and select New Customer.
- Enter the needed details and click OK to save.
Step 3
To record the donation, you can create a sales receipt. Here’s how:
- Go to the Customers menu, then select Create Sales Receipts/Enter Sales Receipts.
- From the Customer: Job drop-down, select a customer or job. If the customer is not on the list yet, you can click Add New.
- Fill in the relevant information at the top of the form like the Date and Sale No, then choose the payment method.
- In the detail area, select the item(s) you propose to do or include as a sale.
- Click Save & Close.
Step 4
Now you can “pay” the bill you entered in step 2 above. Be sure to choose the cash account and not your real bank account for the transaction. Also, the “method” doesn’t have an option for cash but it doesn’t matter much.
For other information on nonprofits, check out my other posts in Non-profit Management
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