Fund accounting is a field of accounting that is used to track how money from grants or donations are spent and whether the spending is in line with laws and regulations and approved allocation of budget or funds. Unlike financial accounting and management accounting, fund accounting focuses on accountability rather than profitability. This explains why fund accounting is mainly used by non-profit or government organisations.
Fund Accounting for Non-Profit Organizations
A fund is a self-balancing set of accounts. The key difference in accounting for non-profit or government organisations and accounting for profit-oriented businesses is that there can be more than one self-balancing set of accounts (i.e. funds) in a non-profit or government organisation while there is only one self-balancing set of accounts in a profit-oriented business. Thus, organisations using fund accounting produce financial statements for each fund in the organisation while profit-oriented organisations only need to prepare one set of financial statements for the entire organisation.
Fund Accountant Role
A fund accountant can assist you in preparing a complete set of financial statements which shall include the following:
- balance sheet (or statement of financial position)
- statement of profit and loss (or statement of revenues and expenditures)
- statement of changes in equity
- statement of cash flows
In some cases, a fund accountant prepares a statement of activities. This is a combined statement of financial position and statement of revenues and expenditures. Similar to profit-oriented companies, the statement showing the movements in the organisation’s equity during the year is called the statement of changes in equity and the statement summarising the changes in the fund balance is called the statement of cash flows.
Understanding More About Fund Accounting
For fund accounting, you will encounter two types of funds, namely, unrestricted and restricted funds. Unrestricted funds are resources that are used to finance the normal or general activities of a non-profit or government organisation. Restricted funds, on the other hand, are resources that are set aside to be used for special activities. A good example of restricted funding is when a non-profit university receives donations that are designated for a specific scholarship fund. Restricted funds can be further categorised into temporary and permanently restricted funds depending on the donor or grantor’s intent, the applicable laws and regulations, or the approved allocation of funds.
Like other fields of accounting, fund accounting also adheres to a set of rules known as accounting standards. Regardless of the accounting standard applicable to your organisation, accountability still remains to be one of the core values of any non-profit and government organisation. This stresses the need for organisations to invest in accounting systems that are built to meet the requirements of fund accounting and to seek assistance from fund accountants who have specialised knowledge and experience in this field.
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