Implement fund accounting: track restricted vs. unrestricted funds, tag grants and donors, reconcile monthly, and keep audit-ready documentation for each grant. Use consistent fund/project codes and a grant master spreadsheet to simplify reporting and compliance.
On the go? Listen on The Deep Dive — where we dig deeper into this topic: ‘Restricted vs. Unrestricted Funds—The Nonprofit Fund Accounting System That Builds Trust and Survives Any Audit’. Listen or download.
Why this matters
Nonprofits must demonstrate that donor restrictions and grant terms are honored. Fund-level reporting (by program, grant, or donor restriction) is required for internal oversight and external auditors. Poor fund accounting risks lost funding, audit findings, and damaged donor relationships.
A quick story
A small arts nonprofit once mixed restricted grant funds into general operations and later could not produce supporting invoices when the funder requested documentation. The grantor requested repayment. We rebuilt their fund tracking, implemented tags for each grant, and produced donor-facing reports that helped them win a follow-on grant. That simple change prevented future misuse and strengthened funder trust.
Core concepts
- Restricted vs. Unrestricted: Restricted funds are earmarked by donors or grantors for specific purposes or timeframes; unrestricted funds can be used at the organization’s discretion.
- Fund Accounting: Track income and expenses at the fund/project level so you can report balances and activity per restriction.
- Grant Schedules: A table per grant showing award amount, period, recognized revenue, expenses charged, and remaining balance.
- Donor Ledger: Record receipts and acknowledgements tied to donors and funds.
Step-by-step: implement fund accounting and grant tracking
- Create fund / project codes in your accounting system for each restricted grant, major program, and unrestricted operating fund.
- Use classes/tags, locations, or sub-accounts to capture program-level detail (e.g., Program A – Supplies, Program A – Salaries).
- Maintain a Grant Master Spreadsheet with columns: Grant Name, Fund Code, Award Amount, Period, Reporting Due Dates, Contact, Restrictions, Status.
- Record donations and grant receipts to the appropriate fund on receipt; include restriction metadata in memo fields.
- When posting expenses, require staff to select the fund/project code and attach supporting documentation (invoice, approval).
- Reconcile bank accounts monthly and reconcile grant receivable and expense schedules quarterly.
- Produce monthly fund-level statements for leadership and grantor reports as required.
Worksheet — Grant / Fund Master Index
Use this table to track active grants and restrictions. Copy into a spreadsheet and keep it updated for reporting and audits.
| Grant Name / Fund Code | Award Amount | Period (Start – End) | Reporting Frequency / Due Dates | Restrictions / Purpose | Contact / Funder | Status / Notes |
| Culture Grant – Fund-Culture-2025 | 25000 | Jan 2025 – Dec 2025 | Quarterly | Program events & stipends | City Arts Council | Agreement uploaded |
| Federal Grant X – Fund-FedX-2024 | 120000 | Oct 2024 – Sep 2025 | Monthly | Program delivery & supplies | Federal Agency | Reporting templates required |
CSV copy (paste into a sheet)
Grant Name / Fund Code,Award Amount,Period (Start – End),Reporting Frequency / Due Dates,Restrictions / Purpose,Contact / Funder,Status / Notes
Culture Grant – Fund-Culture-2025,25000,Jan 2025 – Dec 2025,Quarterly,Program events & stipends,City Arts Council,Agreement uploaded
Federal Grant X – Fund-FedX-2024,120000,Oct 2024 – Sep 2025,Monthly,Program delivery & supplies,Federal Agency,Reporting templates required
Here’s a ready-to-use CSV you can open in Google Sheets or Excel.
Download the CSV — NonProfit Grant Master
Best practices & internal controls
- Use a single chart of accounts with fund codes — Keep one system of record and use fund/project tags rather than separate ledgers.
- Require supporting docs for restricted expenses — Attach invoices, approvals, and program notes to each transaction tied to a restricted fund.
- Monthly fund reconciliations — Reconcile fund balances to bank and GL monthly and investigate variances promptly.
- Grant file organization — Store grant agreements, budgets, deliverables, and reports in a centralized folder with consistent naming.
Reporting & audit readiness
Produce these schedules to stay audit-ready:
• Grant-by-grant revenue & expense schedule
• Fund balance schedule (restricted vs. unrestricted)
• Fixed asset register (if grant purchased equipment)
• Donor ledger and receipts
• One-page narrative explaining major reconciling items or large variances
Donor report one-line schedule (example)
Donor: Acme Foundation
Grant/Fund: Fund-Vax-2025
Period: Q1 2025
Beginning Balance: $0
Receipts: $25,000
Expenses: $12,000
Ending Balance: $13,000
Notes: Clinic delivered March 2025; receipts attached.
Common pitfalls to avoid
- Mixing restricted funds with general operating funds.
- Not tracking reporting deadlines and deliverables.
- Losing or misfiling grant agreements and approvals.
- Failing to document programmatic approvals for expenditures.
Tools & templates that help
- Use fund/project tagging in QuickBooks Online or Xero — Classes/locations or tracking categories make reporting easier.
- Maintain a Grant Master Spreadsheet — A single source of truth for award amounts, restrictions and due dates.
- Document storage (Drive/SharePoint) — Centralized file storage with consistent naming and access controls.
Next steps
1. Export your current donor and grant lists and paste them into the ‘CSV copy’ above.
2. Reconcile fund balances for the last quarter.
3. Book a free Nonprofit Fund Accounting Review.
Keep donor trust first: track funds, reconcile monthly, and report clearly. Need help getting audit-ready? Book a free 30-min Nonprofit Fund Accounting Review.
Giesler-Tran Bookkeeping • gieslertranbookkeeping.com • 971-200-5158