The main question before posting a Grant - does the balance at the end of (date or expenses) have to be paid back to the Grantor? If this is the case, then I would set the Grant up as an account in the Current Liabilities. The deposit to the bank would include a credit to this Liability account. All expenses can then be put through the same account. At the end of the project you would know exactly how much to return to the Grantor. The bonus here is that all the transactions are in one account making it very easy to report to the Grantor.

If the balance does not have to be paid back to the Grantor I would include the Grant in a Revenue account and just process the expenses in the normal way. The catch here would be if your year end is December 31. If it is I would make the deposit to a Liability Account in 2022 and then move the amount to a Revenue account in 2023 when the expenses occurred. This treats the Grant as deferred revenue.

Hope this helps

The second option is correct. I do not have to pay the Grantor back. Our year end is December 31st.

In regards to posting it in Sage. That is where I am a little confused as I have never done it before. 

For 2022, I would create a new account in the Liabilities. I can name it the Grant's name, and add the amount of the grant ($2500). This would be like adding a loan? If the grant was deposited December 24, do I need to add it as a payee?

For 2023, all the expenses for the $2500 were done in the first week of January. I have the receipts for those. How would I change it to Revenues? and how do I claim those expenses? Would they come out of that revenue account?

Thank you for all your help!

This seems like a lot of work for the sake of two weeks of recording the entries, however, if you take the grant into revenue in 2022 you don't have it to match against the expenses in 2023.

I would create a 2xxx account in 2022 and credit it with $2500. Then on January x, 2023 I would debit the 2xxx account a credit the 4xxx account. I would not name the 2xxx account with the grant name as a more generic name would make it usable in other cases of this same type. The expenses should all be entered using a 5xxx account (and tax accounts if applicable). 

That worked! Thank you very much for all your help!