How To Understand Fund Accounting Basics

Recording data on notebook

Fund accounting is a branch of accounting that is mostly used by non-profit organizations to be able to have a report on where their funds are spent. The assets and liabilities of organizations are grouped together in accordance with their specific uses. 

The fund accounting report consists of the assets, liabilities, net assets, revenues and expenses of the organization. Fund accounting is different from the usual accounting, as this branch focuses more on the allocation of funds rather than on the profit that they create.

Here are some of the basic concepts of fund accounting:

  1. Acquire Funds. Non-profit organizations get funds from different sources. This may be companies or businesses that support the organization, or it may also come from different individuals that donate funds to the organization. The funds that are acquired by the organization have restricted uses. They must be used for the betterment of the members of the organization or for the activities that they do. The companies or individuals that donate the money must receive a fund accounting report that has entries on the activities or improvements to know where the money they donated went to.
  2. Requirements. The budget that the non-profit organizations acquire must meet the needs and requirements of the organization. This includes the fees that are going to be used for different activities and improvements, and it may also consist of the salaries of the people who work for the organization. There are two main categories for a non-profit organization’s expenditures. These are the general fund and the special purpose fund. If the expenditures do not meet the requirements of the non-profit organization, the funds cannot be used.
  3. Reporting of Funds. The non-profit organization must provide a detailed reporting of the funds. This must include all the expenses used by the organization for general purpose and for special purposes. This report will be given to the individuals or the companies that helped in acquiring the funds for the organizations. The detailed report will give the people a chance to know where their money was spent.
  4. Helpful Software. There are different software titles that can be used in fund accounting. This will help the organization to collate and record information regarding their funds in a system. Peachtree accounting is one of the applications that are used in accounting. Sage Software developed it. There are a lot of products from Sage accounting that can be used for accounting. Another software that can be used for accounting is QuickBooks.

These are the basic concepts of fund accounting. Fund accounting is a branch of accounting that has been called into question, as there is no clear purpose for it, unlike the standard accounting principles that are used in businesses and companies.  You can learn more about fund accounting and how to make the most of it through online courses or online accounting degree programs.  This is an accounting branch that is used by non-profit organizations and other public sectors to be able to create a financial report for their activities and expenditures. It is a helpful way of reporting to the people how they helped the organization conduct different activities.


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