Step 1: Set Up a Revenue Account for Donations 

  • Go to Accounting > Chart of Accounts. 
  • Click Add Account and create a revenue account labeled “Donations.” 
  • Set the account type to Revenue to categorize all incoming donations accurately. 

Step 2: Enable Tracking Categories for Donation Sources 

  • Go to Settings > Advanced Settings > Tracking Categories. 
  • Create a new tracking category, such as “Donation Source,” to track where donations come from (e.g., events, online campaigns). 
  • Add specific options, like “Corporate Donations” or “Individual Donors,” under this category. 

Step 3: Record Each Donation Received 

  • Go to Banking > Receive Money and select the donation bank account. 
  • Choose Receive Money to record each donation as a transaction. 
  • Assign each transaction to the “Donations” revenue account and apply the relevant tracking category (e.g., “Individual Donors”). 

Step 4: Generate Donation Receipts for Donors 

  • Go to Invoices > New Invoice and create a custom invoice to serve as a donation receipt. 
  • Enter the donor’s details, amount, and description (e.g., “Charitable Donation”). 
  • Send this receipt to donors to confirm their contribution. 

Step 5: Use Reports to Track Donation Totals 

  • Go to Reports > Income Statement to view overall donation revenue. 
  • Customize the report by applying tracking categories to break down donation sources. 
  • This gives you insights into your main donation streams and helps you assess campaign effectiveness. 

Step 6: Review Donation Summaries for Compliance 

  • Use the Transaction Detail report for detailed tracking of all donation entries. 
  • Ensure each donation is accurately categorized to maintain compliance and provide clear records for audits or reporting. 

Tracking donations in Xero helps nonprofits maintain transparency, improve donor relationships, and manage finances effectively.