Glossary
Fund Accounting

Endowment Fund

By: Alec Hollingsworth
Updated:  
June 2, 2025

DEFINITION:

An endowment fund is a permanently restricted pool of assets invested to generate income for a nonprofit’s mission.
An endowment fund is a pool of donated assets, typically invested to generate income for a nonprofit organization over the long term. The principal of the fund is usually kept intact, while a portion of the investment earnings is used each year to support the nonprofit's mission and programs. Endowment funds are often established through donor restrictions, meaning the organization must use the funds in accordance with the donor’s wishes. Proper management and accounting of endowment funds are critical for ensuring compliance, long-term sustainability, and donor confidence.

Key Takeaways

  • Endowment funds are invested to generate ongoing income.
  • The principal is typically preserved according to donor wishes.
  • Proper tracking is essential for compliance and reporting.

Why It Matters

Endowment funds provide ongoing financial stability and uphold donor restrictions.

Real World Example

A university receives a $1 million donation to establish a scholarship endowment fund. The donor specifies that only the earnings from the endowment, not the principal, can be used each year to provide scholarships for students. The university invests the $1 million, and each year, a portion of the investment income is awarded as scholarships. The principal remains intact, supporting students for generations. The university uses fund accounting software like Aplos to ensure the endowment is tracked separately and managed according to the donor’s restrictions.

How Aplos Helps

Aplos allows nonprofits to track endowment funds separately from other funds, ensuring compliance with donor restrictions and accurate reporting. You can manage fund balances, generate financial statements, and monitor investment income within Aplos to maintain transparency and accountability.
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Frequently Asked Questions

What is the main purpose of an endowment fund?

The main purpose is to provide long-term financial support by investing principal donations and using the earnings for the nonprofit’s mission.

Can the principal of an endowment fund be spent?

Typically, the principal is preserved according to donor wishes, and only the investment income is available for use.

How does Aplos help track endowment funds?

Aplos enables nonprofits to track endowment funds separately, ensuring compliance with donor restrictions and accurate financial reporting.

Related Terms

Chart of Accounts
Statement of Cash Flows
Permanently Restricted Net Assets
Statement of Financial Position
Fund
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