How To Understand Principles of Fund Accounting Systems

Fund accounting is an accounting system that is mostly used by the public sector. Fund accounting deals with the presentation of an organization's assets and liabilities. They are grouped and organized in a manner that will show where and how the money of the organization is spent. This is also used for preparing reports for companies or individuals who donate or give grants to an organization. The fund accounting report will give them an idea of where their donations go.

Here are some of the principles of fund accounting systems:

  1. Segregate Expenditures. Non-profit organizations or the government are expected to segregate their expenditures for the benefit of the sources of their funds. The segregation of the funds must meet the specific items that can be seen in the CFDA or the Catalogue of Federal Domestic Assistance. There are two major classifications of funds for fund accounting. These two are namely the general fund and the special purpose funds. In the case of the government, this may be called government accounting. Peachtree accounting is a software that was developed by Sage Software. Sage accounting software helps in providing accounting packages that will help in the accounting process.
  2. Budget. In fund accounting, the budget reports or accounting books, there must be a detailed reporting of the revenues and expenses for the past year, increases in costs, asset accounting and all the necessary details. This will help the organization determine a budget assumption for the coming year.
  3. Cost Principles. The expenses of a non-profit organization must comply with cost principles that are dictated by federal law. The expenses must only be used for payment of valid activities of the organization and the documentation of the activities, and they must also be reported. The budget for the organization is approved when it meets the laws on funding and allocation of the funds.
  4. Accounting System. The accounting of a non-profit organization must be complete with all the chart of accounts, cash receipts, cash disbursements, payroll and a ledger. This will help keep track of the details of the expenses. Apart from the activities that are done and the expenses, the mentioned details must also be present. This presents a clearer picture of the expenses of the organization.

These are some of the principles of fund accounting for non-profit organizations. It will help them report their funds and budgets to the people who donate the funds. It is a helpful way of keeping track of the cycle of money in the organization. Other people use accounting software to be able to keep track of their expenses. Fund accounting is slightly different from the usual accounting that is done by businesses. This is because fund accounting gives more importance to knowing the budget and allocating it rather than concentrating on the profit that was earned.


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