Nonprofit Fund Accounting Basics
What Is Fund Accounting for Nonprofits: Basics and Best Practices
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Learn how you can implement nonprofit fund accounting in your organization:
One of the many misconceptions utilizing nonprofit fund accounting for your organization is the notion that every program activity, or grant received by your nonprofit must be set up as a separate fund. While management might think this is giving them better information, it really is clumsy, confusing and creates an inordinate amount of work. With the proper accounting software tools and management practices that establish budgets for each of your program activities, money that is set aside for specific purposes can easily be tracked in the same fund.
Another misconception is thinking that your fund balance must equal your cash balance, so organizations will set up separate cash accounts for each fund. Fund accounting does not require a physical segregation of the assets of each fund. So you don’t need separate bank accounts for each fund, or separate receivables or payables for revenue and expenses related to the fund. All the organization’s cash may be kept in a single bank account and the receivables and payables are kept in the general fund. With a true fund accounting software system, you will be able to track the accountability of each fund.
With fund accounting, there is there is no such thing as a temporary or permanently restricted expenses. Only revenue is restricted for a designated purposes. So when the restriction is met, then the revenue is matched with the expense it is designated for.
Understanding funds and the proper implementation of fund accounting in your organization will give you a better understanding of your financial activities, provide more meaningful information to the Board, funding sources and the general public.
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