ACC 405 Fund Accounting Short Paper - Rumrill

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Southern New Hampshire University *

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405

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Accounting

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Feb 20, 2024

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docx

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Uploaded by ashlynnskyrumrill

Fund Accounting Short Paper Ashlynn Rumrill Southern New Hampshire University ACC 405: Advanced Accounting Professor Joy Hiatt February 11, 2024

Fund accounting is a basis for determining the status and responsibility of nonprofit and government entities. “The basic principle of fund accounting is that it separates income into various resource streams for organizations who have more allocation direction from their various revenue sources.” (Guilbault, 2021) Non-business organizations usually have more allocation directions for their funds since they do not keep them for profit and rely on various revenue sources through donations. Fund accounting is a method of accounting that allocates, manages and reports the various funds of not-for-profit organizations. Fund accounting is used by Government entities to help section funds into categories for what the money is meant to be used for. This sectioning of funds can be used for the purposes of internal control or for additional transparency within financial reports. Government entities receive funds mainly from taxpayers, so they must be extremely transparent with their financials and must provide regular reports on how they are spending their funds. Fund accounting used by Government entities can help demonstrate fiscal responsibility by proving through easier transparency that they are using taxpayer money wisely. This applies to all local and state governmental organizations. Fund accounting is used by nonprofit entities, besides government organizations, to help separate their many different sources of reveue. Nonprofits typically rely on donations so having this method of accounting helps them ensure that the money they recieve is being used appropriately. Fund accounting is especially useful for nonprofits because “larger donations, such as those given to the nonprofit as major or planned gifts, may have donor restrictions” (Guilbault, 2021) and this method helps simplify assets into net assets with donor restrictions and without. Nonprofit organizations are also required to provide “qualitative disclosures on how a not-for-profit manages its available liquid resources” (FASB) for transparency.

Government entities, nonprofit organizations and partnerships can all benefit from using fund accounting, albiet differently. Government entities “provide services to the citizenry” (California Department of General Services, 2020) and use fund accounting to make their financial activities more transparent to “the users of a government's financial reports which are citizens, their elected representatives, oversight bodies, and creditors” (California Department of General Services, 2020) The overall organizational purpose of government entities is to serve the public (citizens), nonprofits may have this same purpose but more likely focused on benefiting a specific cause, and partnerships are for profit organizations. Government organizations follow GASB guidelines and accounting standards while nonprofits and partnerships follow FASB accounting standards. They are also required to report their fund usage in more detail than other entities. Government and nonprofit organization affect the public so they have more strict standards and rules while “t he limited partnership agreement shall be considered to determine at what level decisions are made” (FASB), partnerships can make more of their own decisions if both/all parties agree.

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References FASB. (n.d.). Financial statements of not-for-profit entities. https://fasb.org/page/PageContent? pageId=/projects/recentlycompleted/statements-notforprofit.html&bcpath=tff Governmental Accounting – key differences - 7210 . California Department of General Services. (2020). https://www.dgs.ca.gov/Resources/SAM/TOC/7200/7210 Guilbault, M. (2021, February 6). The basics of fund accounting: Key Concepts for nonprofits . LinkedIn. https://www.linkedin.com/pulse/basics-fund-accounting-key-concepts-nonprofits- melea-guilbault/ Jeter, D. C., & Chaney, P. K. (2022, November 7). Advanced Accounting, 8th edition . Wiley.com. https://www.wiley.com/en-us/Advanced+Accounting%2C+8th+Edition-p-9781119794615 GASB. (n.d.). General Principles 1300—Fund Accounting Standards . Gars. https://gars.gasb.org/3047379/2147483502