Dictionary / Fund Accounting
What does Fund Accounting mean in accounting?
Quick definition
GeneralIn governmental and institutional accounting in terms of a sum of money and, often, other assets as well, constituting a separate accounting entity, created and maintained for a particular purpose and having transactions subject to legal or administrative restrictions. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
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Examples
Roof gift cannot cover the electric bill
You keep books for a community church, which uses fund accounting: the General Operating Fund and the Building Fund are each a separate entity with its own cash, bills, and fund equity. On June 3 the Building Fund receives an $18,500 restricted gift from a family foundation for the sanctuary roof; post it only in that fund (debit Building Fund checking $18,500, credit restricted revenue and that fund's equity). On June 17 an electric utility bills $1,240 for electricity, a General Operating Fund cost. Do not pay the utility from Building Fund checking even though the roof cash is there. Enter the bill in the General Operating Fund so each fund's balance sheet still shows its own assets and equity.
A shop savings label is not this method
You run a fabric shop. On November 6 you transfer $3,200 from operating checking into a second account at a credit union that you label equipment fund for a future serger. That is a fund: assets set aside for a use, not fund accounting. You still have one general ledger and one equity line, and you can pay any shop bill from either bank account. In QuickBooks Online, record a transfer between bank accounts, not a second entity with its own fund balance.
Why it matters
Fund accounting is the governmental and institutional method that treats each restricted pot as its own entity, with its own assets, bills, and equity, and legal or administrative limits on every transaction. You will not use it on a typical shop file. It shows up when you keep those books and money comes in or a bill comes due that belongs to one restricted fund. A fund is only a segregated pile of assets inside one set of books; treat this term the same way and you will pay one fund's bills from another, and financial reporting will no longer show each fund's own equity.
Further reading
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What is Fund Accounting in bookkeeping?
In governmental and institutional accounting in terms of a sum of money and, often, other assets as well, constituting a separate accounting entity, created and maintained for a particular purpose and having transactions subject to legal or administrative restrictions.
When should I use Fund Accounting?
Use Fund Accounting when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Fund Accounting?
Fund Accounting is used for fund accounting entries, while F.O.B covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.