Fund accounting records daily transactions based on a nonprofit’s specified funds. You may have a general fund, a project-based fund, and so on to track income and expenses around grants, donor bequests, or special projects. By setting up a system of fund accounting that’s clear and easy to follow, you can keep your general ledger clean and ensure that expenses, income, and capital are tracked accurately.
Benefits of Fund Accounting
Fund accounting offers several benefits to nonprofits. First, it confers greater visibility on your accounts so that the public can confirm that your funds are being used as you promise they will be. It also offers greater insight into the nonprofit’s overall fiscal health. Donors and granting organizations like to know that their money is going to be used to continue your work fulfilling your mission, and not to close down the organization or conduct your work only half-heartedly due to lack of funds.
You can also manage your accounting better when using fund accounting methods. As you manage each fund, you can clearly see where you may need to increase your fundraising efforts and where you may be on a firmer footing. Funds that are low can be shored up; funds that are robust can continue.
Organizations bestowing grants on nonprofits also like to know where, when, and how their money will be used. Fund accounting makes that task easier, and may improve your chances of gaining much sought-after grants.
Setting Up Fund Accounting Software
The easiest way to track your funds for fund accounting systems is by setting up your accounting software so that it can track funds from the get-go. Most software packages enable users to define specific general ledger fields. These user-defined fields can be used to tag specific fund accounts and keep the general ledger clean and manageable. You can set these up when you install an accounting software program.
Best Practices in Action
Once you’ve established your accounts and you know what you have to work with, you can then implement best practices and develop a plan to shore up low funds and utilize other funds more effectively.
A good fund accounting plan includes assigning accountability for the fund, relationship building strategies, fund solicitation strategies, and more. In other words, you’ve got to know what money you have in the fund and how you’ll continue to grow and nurture relationships to keep it coming in.
As you can see, fund accounting is more than entries into the general ledger. It’s about making accounting an integral part of your nonprofit planning and operations. Accounting techniques like this can help you make great progress towards achieving your mission.
Fund Accounting Help
Beck & Company works with many types of nonprofits to help them organize, streamline, and refine their accounting and operations. We can help you establish your fund accounting system or clean up one that’s already in place but may not be doing what you’d like it to do.
You may also be interested in an upcoming webinar on fund accounting best practices. It’s free, and provides many resources you can use to improve your financial reporting.
We work with nonprofits to transition them into new systems and help them enhance their business and accounting processes. We can help you select the best accounting system for your needs and help you transition to a new system with minimal disruption and downtime. Contact us today or call 703-834-0776 ext. 8001.