If you’ve already read our general guide to setting up QuickBooks Online for churches, you know the Class feature is how most churches track designated and restricted funds. This post picks up exactly where that one leaves off — a practical, step-by-step walkthrough of setting designated funds up correctly, not just knowing that you should.

Before You Start: Class vs. Sub-Account

QuickBooks Online offers two ways to separate designated funds: Classes, or sub-accounts under your main accounts. For church fund accounting, Classes are almost always the better choice. Sub-accounts multiply your chart of accounts (a separate “Building Fund Income” and “Building Fund Expense” account, for example), which gets unwieldy fast once you have more than a couple of funds. Classes let you keep one clean chart of accounts and tag every transaction to a fund, which is what makes fund-specific reporting actually usable.

Step 1: Turn On Class Tracking

Class tracking isn’t on by default. In your account settings, under the Advanced section, find the Categories area and turn on “Track classes.” While you’re there, it’s worth also turning on the option to warn you when a transaction isn’t assigned a class — this one setting prevents most of the fund-tracking mistakes that happen down the road, since it stops an untagged transaction from slipping through unnoticed.

Step 2: Build Your Class List

Navigate to your Class list (usually found under your full list of settings or lists) and create one class per fund your church actually tracks separately. A typical starting structure looks like:

• General Fund
• Building/Capital Fund
• Missions Fund
• Benevolence Fund
• One class per significant designated gift, if you have several distinct ones

Resist the urge to create a class for every small designation. A handful of well-organized funds is far more useful than twenty overly specific ones nobody consistently remembers to use correctly.

Step 3: Tag Every Transaction at the Point of Entry

Every income and expense transaction needs a class assigned — not just the ones that are obviously restricted. General offertory income gets tagged to your General Fund class, the same as a building fund donation gets tagged to Building/Capital Fund. This consistency is what makes your fund reports accurate; a transaction left untagged effectively disappears from fund-specific reporting, even though the money is still sitting in your bank account.

For deposits that include gifts to multiple funds in one bank deposit, split the deposit into separate lines by class rather than recording it as a single lump transaction — this is one of the most common places accuracy breaks down.

Step 4: Handle Restricted Gifts as They Come In

When a restricted gift arrives, record it immediately, tagged to the correct fund class, rather than waiting until month-end to sort it out. Waiting is exactly how restricted gifts get miscoded as general income — a well-intentioned bookkeeper doing a batch of deposits from memory, without the original designation clearly documented, is a common failure point.

Step 5: Run Fund-Specific Reports

Once transactions are tagged consistently, run a Profit and Loss by Class report to see the activity and balance of each fund individually. This report is your primary tool for verifying that fund balances make sense — if the Building Fund shows a negative balance, for example, that’s an immediate signal something was either miscoded or genuinely overspent, and it needs attention before it compounds.

Reviewing this report monthly, not just at year-end, catches coding errors while they’re still easy to fix.

Step 6: Handle Fund Transfers Correctly

Occasionally, money legitimately needs to move between funds — closing out a completed building project and moving the remaining balance to a new designated purpose, for example. Handle this as a proper transfer between classes, documented with a clear reason, rather than simply re-tagging historical transactions. Re-coding old transactions to “fix” a fund balance retroactively erodes your audit trail and makes it much harder to explain what actually happened if the transfer is ever questioned.

Step 7: Release Temporarily Restricted Funds When Their Purpose Is Complete

When a temporarily restricted fund’s purpose is fulfilled — the building project is finished, the mission trip has happened — formally document that the restriction no longer applies. Any remaining balance should be clearly addressed: either returned to the fund’s original broader purpose, or reallocated with appropriate board approval, not left sitting in a class that no longer reflects an active restriction.

Step 8: Reconcile Fund Balances Against Your Bank Balance Regularly

Your total fund balances (General plus every designated fund) should always reconcile to your actual bank and investment account balances. If they don’t match, that’s a sign something’s been miscoded somewhere in the system, and it’s much easier to track down a discrepancy monthly than to untangle a full year’s worth of activity at once.

Common Setup Mistakes to Avoid

• Not enabling the “require a class” warning, which lets untagged transactions slip through unnoticed
• Creating too many overly specific classes, making consistent tagging unrealistic for whoever’s doing data entry
• Waiting until month-end to code restricted gifts, instead of tagging them the moment they’re received
• Re-coding historical transactions instead of properly documented transfers, which breaks your audit trail
• Never running the Profit and Loss by Class report, so fund balance problems go unnoticed until they’re much harder to unwind

If Your Funds Are Already Mixed Up

If you’re reading this because your church’s designated funds are already tangled together in QuickBooks, the fix is a proper cleanup — reviewing historical transactions, reconstructing what should have been tagged to which fund, and rebuilding accurate balances going forward. Our guide to restricted and unrestricted funds covers the underlying principles if you need the conceptual foundation before tackling the QuickBooks cleanup itself.

How Prospera Sets This Up

We configure QuickBooks Online’s class structure correctly for every church we work with — proper class lists, required-class settings turned on, and monthly fund reports as part of standard reporting — built into our broader church bookkeeping services, so designated funds stay accurate from day one instead of needing a cleanup down the road.

Frequently Asked Questions

Should churches use Classes or sub-accounts for designated funds in QuickBooks Online?

Classes are almost always the better choice. They let you keep one clean chart of accounts while tagging every transaction to a fund, whereas sub-accounts multiply your account list and become difficult to manage once you have more than a couple of funds.

How do you track restricted funds in QuickBooks Online?

Turn on class tracking in your account settings, create one class per fund, and tag every income and expense transaction to the correct class at the point of entry, then run a Profit and Loss by Class report to see each fund’s activity and balance.

What happens if a transaction isn’t assigned a class?

It effectively disappears from your fund-specific reports, even though the transaction is still recorded in your overall books, which is why enabling QuickBooks’ warning for untagged transactions is worth doing from the start.

How do you move money between designated funds correctly?

Record it as a documented transfer between classes with a clear reason, rather than re-coding historical transactions, which preserves your audit trail and makes the transfer easy to explain if it’s ever questioned.

How often should churches review their fund balances in QuickBooks Online?

Monthly is best. Reviewing the Profit and Loss by Class report regularly catches coding errors while they’re still easy to fix, rather than discovering a problem at year-end.

Get Your Fund Accounting Set Up Correctly the First Time

Let Prospera configure QuickBooks Online’s fund tracking properly for your church, so every designated dollar is accounted for accurately.