Fund Accounting Basics
In standard accounting you keep track of your assets, liabilities, equity, income, and expenses for one account. With fund accounting, you need to track those five things, but you need to track them separately for each area in your accounting that is designated for a specific purpose, which is what we refer to as a fund.
In regular accounting you can see the total balance of your bank account. But how do you know how much is set aside for each fund you have set up? With this type of accounting, you can’t.
To properly manage the books for your organization, you need the right tools. One of the major advantages of this type of accounting is that you can track not only the total of the account, but also how that total is spread out across your funds.
For instance, if there is $1,000 in your account, you can see:
- $500 is set aside for your General Fund
- $300 is set aside for the Missions Fund
- $200 is set aside for the Building Fund
Using this method, you know how much money you have available in each fund. So there you have it. That’s what fund accounting is.