Fund Accounting Course

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Fund Accounting is an accounting process that tracks revenues and expenditures, differing from financial accounting, which tracks income and expenses. Fund Accountants work with non- profit organizations and governmental agencies. These entities use “general funds” and “special funds” as necessary.

General Funds are used for “general” activities and expenditures, and may include such items as accounting, marketing, fundraising, rent, utilities, etc., which are not specifically identified as related to or limited to a “special fund.”

Special Funds are used for specific activities or purposes. Revenues and expenditures are tracked as if each fund were a separate entity, with its own encompassing chart of accounts. Examples of governmental special funds might include fuel taxes, cigarette taxes, school taxes, etc.

Governmental Funds might include capital funds for the acquisition, construction, or upgrade of land, buildings, highways, or equipment, referred to as “fixed assets” in management accounting processes. The retirement or repayment of bonds or other forms of governmental debt are typically handled by “debt service” funds. Unique, one-time improvements or expenditures are typically handled by “special assessment” funds, such as upgrading a park, purchasing a wetlands area for conservation, etc.

Fund Accounting allows the use of “cash basis,” “accrual basis” or a mixture of both, called “modified accrual,” depending on the nature of the asset or expenditure.

Nonprofit Fund accounting might include “unrestricted” or “current fund-unrestricted” funds which may be used at the discretion of the governing authority of the fund. “Restricted” or “current fund-restricted” funds are limited to expenditures as defined by those that donated or granted the funding. As with Governmental Funds, Nonprofit Funds have a category for capital expenditures for land, buildings, equipment, and “long-term” assets. “Endowment Funds” are funds or assets received by the entity, but are being held in perpetuity, with only the income or interest derived from those funds or assets being used by the fund. Other funds may include “fiduciary” amounts, held by the fund to be spent at the direction of donors or grantors.

There are several features of Fund Accounting that are similar to Financial Accounting:

The Statement of Financial Position lists the assets and liabilities of the fund, similar to the balance of a for profit entity.

The Statement of Activities or Statement of Revenues and Expenditures lists, as the titles suggest, the revenues and expenditures for a given calendar period, similar to the income statement of a for profit entity. Fund balances are reported at the beginning and end of the period, with revenues and expenditures accounted for during the period.

A long list of other reports may be generated to comply with the requirements of each entity’s charter, by-laws, federal, state, and local statutes.

Summary: In its simplest form, Fund Accounting tracks how much money is actually received versus how much was expected to be received and how money is actually spent versus how it was allocated to be spent.

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