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This question is about accountant skills.
What is fund accounting?
Fund accounting is a system of accounting used to track the amount of money allocated to various operations at an organization. It's a system designed to ensure funds are used productively and for the benefit of the organization as a whole.
Fund accounting is a useful method of accounting when all of the funds an organization earns are recycled and reinvested back into the organization itself rather than collected as a profit. It is designed for organizations that do not aim to earn a profit and rather focus on accountability for where funds are used.
An example of fund accounting would be when a nonprofit organization earns a $500 donation from a donor, that money can be used to fund the operational costs of the organization, be dedicated toward a specific program, or be used to help host the next fundraising event. The money is not collected as profit.
Charitable and non-profit organizations rely on contributions from supporters, grants from numerous organizations, federal and state funding, and sponsorships. These generous contributions all play an important part in keeping the organization afloat and working toward its mission.
Nonprofits must restrict their funding to keep track of how their monies are used based on who contributed those funds and how they were restricted.
For example, organizations that rely heavily on grants likely have specific deadlines and requirements they need to meet for each grant. Therefore, they use fund accounting to keep track of those deadlines in addition to tracking donor-restricted funds.
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