What is Fund Accounting
Fund accounting is like a spotlight which is capable of accommodating and shedding light on every feature of a systematic process in one go. It is a diverse association of variable measurements, categorisation, elucidation and a précis of financial data. An approach that allows you to communicate your finances is safely included under the accounting phenomena.
An Overview of Fund Accounting
Contrary to the conventional accounting business methods, the ultimate fund accounting definitionexplains it as a strategy that puts the need of accountability under the spotlight, rather than focusing on the generation of profits. Fund accountingis implemented within non-profit oriented organisations that have been established for achieving a specific purpose. The chief reason behind using a fund accounting system is to maintain a record of the allotment and expense of fixed finances. The practice of a system such as fund accounting is exclusive to non-profits including government agencies, cathedrals and other religious establishments, hospitals, schools and more alike.
An alternative fund accounting meaningalso delineates it as the allocation of proceeds that a non-profit organisation receives in the form of donations, imbursement of taxes, allowances and other communal as well as private sources. It basically oversees and digitally files the use of resources and money that comes in as donation. There are countless funds that a not-for-profit association makes use of and each of these funds are set up with individual set of accounts and a balance sheet each, so that the use of funds for the intended purpose can be monitored.
Fund accounting in the governmental sector comprises of three fundamental fund groups:
1. Governmental funds – Generally these funds are brought into consideration for attainment, check and balance of consumable finances and comparative current liabilities.
- General funds
- Permanent funds
- Debt service funds
- Special revenue funds
2. Proprietary funds – These are self-financing funds which are extensively employed in private business undertakings Examples:
- Enterprise funds for charged business activities
- Internal service funds for tracking the funds endowment from one department to another
3. Fiduciary funds – Includes the assets that the organisation possesses in a representative expanse. The four types of fiduciary funds are:
- Pension trust funds
- Investment trust funds
- Private-purpose trust funds
- Agency funds
Basic Fund Categories
Each fund can be used according to its features. However, all the funds discussed below open under the umbrella of hedge fund accounting, which allows the accumulation of finances from donating investors. These funds are further categorised here:
I. Current Unrestricted Funds
These funds are allotted for the overall operating expenses of the governmental organisation. The asset use of these funds is unrestricted. Therefore, as long as the purpose of the organisation is being fulfilled, the executive committee can choose to use the funds wherever they feel it’s appropriate.
II. Current Restricted Funds
Donated monetary resources are meant to be used for a specific purpose of the organisation. Therefore, these assets are valued under current restricted funds because the funds are restricted from being used for any other organisational matter.
III. Endowment Funds
An endowment fund retains the benefit of bringing additional income. Endowment fund income can be sub-categorised under either a restricted or an unrestricted account as per the donor's directions. Organisations normally use the income generated by endowment assets, without disturbing the code of the allotted fund.
IV. Board-Designated Funds
When the executive body of a governmental organisation transfers assets from an unrestricted fund into a new fund designated for a particular purpose. Instead of external donors, the board is deemed responsible for the use of this fund.
V. Fixed Asset Funds
Finances classified under fixed asset funds are normally allotted for long-term payments of the organisation including construction and equipment factors. Hence, extraction of money for fixed payments from the unrestricted funds is not allowed.
VI. Specialised Fund Groupings
Keeping in mind the extraordinary conditions emerging within an organisation, specialised funds are used for several purposes, but the money which is intentionally donated for a purpose of the organisation has to necessarily fulfil the specified purpose.
FreshBooks - Fund Accounting Software
While half the populace was wasting a considerable time over manual balance sheets, more than 5 million businesses including a majority of freelancers across the technological globe were obtaining convenient outcomes from FreshBooks. FreshBooks is a fully-featured, cloud-based fund accounting software which includes the aspects of an efficient time-tracking system, receipt scanning, instant client billing, and mobile invoice creation. Corporate accounting has emerged as an essential system of regulation allowing small businesses to track overall monetary transactions of the firm, simultaneously enabling it to receive immediate feedback and analysis.
You do not necessarily entail experience in fund accounting basics, in order to use an accounting software such as FreshBooks. Moreover, this software allows you to gain insights that will elevate your business to unimaginable heights and help you earn faster. With the growing advent of accounting softwares, fund accounting jobs are likely to decline over the years, while encouraging the use of competent softwares such as FreshBooks.Try Freshbooks for Free >>>
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