What is fund accounting?
Fund accounting is a method of accounting used by non-profit organisations and public bodies that records money in separate funds according to its purpose and any restrictions set by donors, grant makers or law. Each fund tracks its own income, spending and balance, so the organisation can show that restricted money was used only as intended.
Also callednon-profit accountingnonprofit fund accountingrestricted fund accounting
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- Used by
- Non-profits and public bodies
- Tracks
- Money by purpose and restriction
- US GAAP split
- With and without donor restrictions
How fund accounting works
Funds are usually split by restriction: unrestricted funds the organisation can use freely, restricted funds tied to a purpose or period, and endowment funds whose capital must be kept. Every transaction is tagged to a fund, and often to a grant, programme and location, so reports can be produced for each funder as well as for the whole organisation. Transfers between funds and the release of restrictions when conditions are met are recorded explicitly. Financial statements follow the relevant rules, such as US GAAP for not-for-profit entities, which reports net assets with and without donor restrictions, or the Charities SORP in the UK. In software, fund accounting is often handled through dimensions on a standard ledger rather than separate ledgers. Sage Intacct is widely used by non-profits and tracks funds, grants and programmes as dimensions.
Common questions
What is the difference between restricted and unrestricted funds?+
Unrestricted funds can be spent on any of the organisation's purposes. Restricted funds can only be used for the purpose or period set by the donor or grant maker.
Do non-profits need special software for fund accounting?+
They need a ledger that can tag every transaction to a fund, grant and programme and report on each. Many use general ledgers with dimensions rather than dedicated fund accounting systems.
Is fund accounting used in investment funds?+
The term is also used for accounting for investment funds, such as calculating net asset value and investor allocations. That is a separate discipline from non-profit fund accounting.
Fund accounting software
Part of Accountio’s accounting technology coverage · Glossary
