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A Brief Understanding of the Fund Accounting

The system of fund accounting is an accounting system that is generally used by the non-profit organizations as well as the governments. In the fund accounting system the whole emphasis is on the accountability rather than the profitability of the organization. In the system of fund accounting the fund is the self balancing set of accounts that is segregated for specific purposes in accordance with the laws as well as regulations and restrictions.  The accounting done in the case of the non-profit organizations and the governments, there are special requirements that are to be meant. These organizations need to show exactly how the money was spent and how much of it is still left and how the budget for the next financial year is being prepared.

Thus in the case of fund accounting all these parameters and requirements are met. Quite unlike the profit organizations wherein the sole purpose of the accounting done is to show the profitability, the non-profit organizations have a completely different agenda. These entities might be having more than one general ledger (or fund) depending upon the various requirements. An accountant who is working in such an organization must be able to show the detailed reports of the expenditures and revenues and reports of the organization’s financial activities across each of the funds.

The state as well as the local governments uses three different types of funds that are the governmental funds, proprietary funds, and fiduciary funds.

The Government Funds include:

  1. General fund.
  2. Special revenue
  3. Capital projects
  4. Debt service
  5. Special assessment

Proprietary Funds include:

  1. Internal funds.
  2. Enterprise funds
The fiduciary funds are used by the government to account for the assets held in trust by the government

The fund accounting plays one of the most important roles in making the non-profit organizations as well as the governments more accountable.