Fund Accounting and Non-Profit Organizations

Fund accounting is a subset accounting used primarily by non-profit organizations to manage their finances. The difference between fund accounting and accounting used by for-profit businesses is that non-profits use fund accounting to keep track of how funds are spent as opposed to how it is earned. The records are thus broken down into various categories that detail where all the money goes and how it is to be spent according to the specifications of those in charge of the funds.


Within a non-profit organization’s ledger, you will typically find funds are broken down into five categories. They are: current funds - restricted, which refers to funds donated by specific grantors or donors that are only used at their discretion; current funds - unrestricted, which are funds used at the discretion of the non-profit organization’s governing board; land, building, and equipment funds, which are funds allocated for the purchase of said items; endowment funds, which refers to the amount the non-profit has received in gifts; and custodian funds, which refers to funds that are disbursed according to the specific instructions of the donor.

When it comes time for a non-profit to produce a report of their funds, they use what is called a Report of Consolidated Financial Statements. These will typically include the following items: a balance sheet, which lists debts and the value of assets held by the non-profit; statement of activities, which details the net profits or losses of each fund during the fiscal year; statement of functional expenses, which disburses the expenses of the organization into amounts specific to various functions set forth by the organization; and statement of cash flows, which deals with the cash coming in and cash going out of the organization.

Does your non-profit need a fund accountant? Most likely, as most non-profit organizations need someone skilled in the field of fund accounting to help them manage their money in a way that follows proper guidelines. A fund accountant will thus help ensure that your non-profit is operating in a way that is not only legal, but sustainable in the long run.

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Posted on June 4, 2012 at 9:00 AM