Fund accounting is something that pretty much every nonprofit organization has to deal with in one way or another. Basically, it is used in a way that emphasizes accountability rather than profitability. Nonprofits are required to use their financial statements and reports as a means to demonstrate how money is spent, rather than to account for profits earned. Oftentimes, they will have multiple funds to manage, depending on the reporting requirements for the account or funding source. A nonprofit's financial success isn't defined by profit, but rather by financial clarity that shows how the organization works to maximize the impact of every dollar received.Because of the variety of approaches, fund accounting systems will generally use five categories of funds:
- "Current unrestricted" funds are used to account for current assets that can be used at the discretion of the organization's governing board.
- "Current restricted" funds use current assets, but they are subject to restrictions assigned by donors or grantors.
- "Land, building, and equipment" funds use cash and investments that are reserved specifically to acquire those items. Liabilities related to those items also should be recorded in this fund.
- "Endowment" funds are used to account for the principal amount of gifts the organization is required, by agreement with the donor, to maintain intact in perpetuity or until a specific future date or event.
- "Custodian" funds are held and disbursed according to the donor's instructions.
Fund Accounting Software
One of the great benefits of fund accounting software goes beyond making things a little easier here and there. Instead, using something along these lines gives nonprofit professionals a much deeper look into the financial makeup of the organization. They can see where funds are coming from and going to. With such clarity, it is often possible to target in on areas that are not as efficient as they should be. When it is easier to understand how each dollar is being spent, it's also easier to see when they are being wasted. In the end, the software will be able to create accurate balance sheets and financial statements for each separate fund, which makes reporting a whole lot easier, too.
Using Software Designed for Nonprofit Organizations
While it is sometimes possible to departmentalize the general ledger on other accounting software, most nonprofits will likely find that using fund accounting is actually considerably easier and probably more accurate. There is a component of setting up each individual fund, but with tracking capabilities and integration with other aspects of the nonprofit accounting software, it's generally going to be worth the additional effort. Additionally, attempting to individualize other types of software for a specific organization may allow for tracking income and expenses, but assets, liabilities, and other items that must be included simply don't track well enough for the balance sheets.
Without a doubt, nonprofits are constantly looking to become more efficient. There are limited dollars, limited employees and volunteers, and limited amounts of time. On top of that, nonprofits undergo strict scrutiny, not only through the government but also through the gaze of their communities, supporters, and the people they help. Using products that have been developed specifically for use by nonprofit organizations rather than for-profit businesses can be a helpful tool in bolstering the transparency and good stewardship that nonprofits strive to uphold.
Software Roundup
The software products rounded up here are some starting point options for nonprofit organizations of various size and purposes. Each includes a bit of information about the product, with a link to
Sage 100 Fund Accounting (formerly Sage MIP)
Sage 100 Fund Accounting is the new iterations of Sage MIP. It is billed as being an ideal choice for nonprofits organizations. This is a modular system that can be scaled up or down depending on the organization's needs and size.
Accufund is an accounting product that is also aimed at nonprofit organizations with a need for fund accounting. This product is billed as being very easy to implement and having a strong capacity for typical nonprofit accounting needs.
Financial Edge is known for being particularly user-friendly with its interface. It has been around for quite a while and the company sees this product as being a "forerunner" to many other systems that are on the market.
Multiview is a module-based product with 14 different modules to choose from. Administrators benefit from a user-friendly system that utilizes dashboards and a helpful interactive environment.
SAP's ERP Financials is a product that can manage a lot of different accounting needs and implement fund accounting for the benefit of nonprofit organizations. The company has a global reach and makes a point to tout that they ensure compliance with industry standards.
Acumatica provides an accounting solution that works as a suite with many different features: general ledger, AR/AP, cash management.
With options for being either installed in-house or hosted off-site, JD Edwwards EnterpriseOne uses Oracle technology. The product provides a number of accounting options, including the tracking of grants and donations.
These are just some of the very many accounting products that are available and geared toward the nonprofit world. For more in-depth insight into more, you may want to take a look at the many fund accounting software reviews we've done at NP Tech News.
