Fund Accounting
rating: 0+x

From Daubert:
A nonprofit or governmental organization exists to provide services and obtains money from various sources to provide those services. In some cases, the source of funds (donors, taxpayers or a governing body) may specify the purpose for which the funds are to be used. Voters may restrict use of some resources, such as money from the sale of bonds that have been approved for certain purposes. Bequests and donations to nonprofit and government organizations are often made with certain restrictions; the organization has a legal obligation to use these funds as specified by the donor.

Because of these characteristics, nonprofit and government organizations use “Fund Accounting” in which money is separated according to its intended purpose. The resources of the organization are divided into distinct financial units, or funds, each of which functions as a separate entity. Each fund has a set of self-balancing accounts, which means that the assets must equal the sum of the liabilities and fund balance; each fund may have a complete set of financial statements and records. Although separate accounts are maintained for each fund, for reporting purposes funds with similar characteristics are usually grouped together. Because fund accounting allows an organization to keep track of money intended for different purposes, it is possible to evaluate the financial status of each individual area.
In nonprofit or governmental organizations it is often necessary to transfer money from one fund to another. Even though the money re- mains within the same organization, transactions involving more than one fund must be recorded in the accounts. If there is a legal requirement to transfer funds (for example, if funds must be transferred to repay a bond), a mandatory transfer is made. If the transfer is made at the discretion of the governing body, it is a nonmandatory transfer.

If there are temporary borrowings between funds, the fund that makes the loan will record the amount as an asset, and the fund that receives the loan will record it as a liability. If transfers between funds have not been completed, the fund that owes the money shows a liability, while the fund to which the money is owed shows an asset on its financial records. This characteristic of recording transfers, assets, and liabilities between funds is unique to fund accounting.

Add a New Comment