Fund Accounting
An accounting system that segregates resources into funds based on their source and intended purpose.
Definition
Fund accounting is the accounting method used by nonprofits and governments to track resources by fund based on donor restrictions, grant requirements, or organizational purpose. Unlike for-profit accounting that focuses on profit, fund accounting emphasizes accountability and stewardship of restricted resources.
Why It Matters
Nonprofits must demonstrate that restricted funds are used for their intended purpose. Fund accounting provides this accountability and is required for audits, grant compliance, and donor reporting.
Examples
Restricted fund expense
An invoice for educational materials is coded to the "Education Program" fund using restricted grant dollars designated for that purpose.
Unrestricted fund allocation
Office rent is coded to the unrestricted general fund since it supports all organizational operations.
How Nexus AP Helps
Nexus AP auto-codes invoices to the correct fund based on vendor, expense type, and grant eligibility rules, maintaining proper fund segregation.
Start Free TrialFrequently Asked Questions
How is fund accounting different from commercial accounting?
Fund accounting focuses on accountability and stewardship of resources by purpose, while commercial accounting focuses on profitability. Fund accounting uses net asset classes instead of equity.
Do all nonprofits need fund accounting?
Yes, GAAP requires nonprofits to report net assets by restriction class. Fund accounting provides the detailed tracking needed for this reporting.
Category
nonprofitRelated Terms
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