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Fund Accounting for Small Organizations

What is Fund Accounting?

Fund Accounting systems provide a self-balancing set of funds within an overall accounting structure. A fund consists of a set of assets, liabilities, and equity accounts which is maintained in balance using the accounting equation Assets = Liabilities + Equity. Among accounting professionals, the term Fund Accounting is often applied to governmental or non-profit organizations. However, fund accounting principles are also applicable to almost any business including profit based businesses.

Non-profit, church, and governmental organizations use funds to segregate their accounts by objective - to track a particular grant, for example. The granting organization will often require an audit of how the grant money was spent. The grant may have been used for such things as salaries, postage, office expenses, program fees, etc. Each expense will be recorded in an appropriate category; however, this does not give an overall picture of how the grant was used. By doing a fund accounting based balance sheet and income statement report, the organization can demonstrate how the grant was used and show its current remaining assets. In addition to tracking individual programs, non-profit and governmental organizations often need to combine individual funds into groups. A typical grouping would be Permanently Restricted Funds, Temporarily Restricted Funds and General Funds. These groupings are often top level funds while sub-funds are used to provide detail.

In a similar fashion, organizations often have a need to track expenses and assets by purpose. A retailer may need to track individual store locations or departments; a contractor may track projects; or a manufacturer may want to track products or departments.

Fund Accounting is useful to look at accounts in more than one way. The traditional way is by expense categories: salaries, stamps, rent, etc. Fund Accounting provides an alternate view by purpose: grants, departments, locations, projects, etc. Think of funds as adding a second dimension to your books.

Fund Accounting with QuickBooks

Many specialized fund accounting software packages are too expensive and overkill for smaller organizations. One very popular accounting package for small businesses is QuickBooks, however, it does not directly support fund accounting. Search the internet and you will find various ideas on how to use QuickBooks for fund accounting.

One suggestion is to use sub-bank accounts to track the current asset balance of your funds. It does do that but does not track the corresponding liabilities and equity for the funds. Nor does it track inter-fund transfers. Also, it is very cumbersome to reconcile a bank account that has sub-accounts.

Another suggestion is to use the Balance Sheet by class report that is available in QuickBooks Premier or Enterprise (not available in Pro version).

At first glance it would appear to offer a solution but it is not geared toward fund accounting because of some limitations. Intuit recommends that you use only one class (fund) per transaction which is unrealistic. It does not work with payroll, sales taxes, or multicurrency. Also, QuickBooks does not track inter-fund transfers. Perhaps the biggest limitation is if you do a QuickBooks Condense Data to reduce your data file size, QuickBooks will remove the older class information thereby breaking your fund balance report. See FundsFix vs QuickBooks Balance Sheet By Class for Fund Accounting

Fund Accounting with FundsFix

FundsFix is a QuickBooks add-on which is designed to support full featured fund accounting in QuickBooks. It creates a fund per column balance sheet to allow fund comparisons; it determines earnings dynamically which means that changes to older data are automatically incorporated; it automatically generates inter-fund transfers to keep each Fund balanced; and it provides a utility to run when doing a QuickBooks “Condense Data” operation to prevent loss of data.

Once FundsFix is installed all its functions are available under the QuickBooks Company menu. To get started, use the FundsFix Setup menu to assign class codes to funds and to assign balance sheet accounts to funds. It is also possible to create sub-funds to allow aggregation of funds such as Permanently Restricted Funds, Temporarily Restricted Funds, and General Funds. Sub-funds can also be used to track department level expenses. With FundsFix, you can total at a sub-fund level to produce a department report for example.

FundsFix creates fund based balance sheets using a familiar QuickBooks like interface. Reports may be filtered by fund or account to create sub-set reports. The resulting reports may be exported for further analysis or may be printed using the familiar QuickBooks formatting options.

FundsFix also provides several features that facilitate fund accounting. There are two Auto Balance features. The first is used to establish known fund balances. This feature is a great way to get your books into fund balance when you first start using FundsFix. The second auto feature is used to re-establish fund balances by adjusting equity to match earnings. FundsFix also has a distribution feature that allows you to do periodic allocations between funds. An example would be a non-profit which needs to allocate administration expenses to grants. FundsFIx provides a period to period comparison report which shows the net change of your balance sheet over the last financial period.

QuickBooks with FundsFix allows users to generate meaningful fund accounting data. With the normal QuickBooks reports, the user can produce fund based P&L and budget reports. FundsFix provides the ability to generate fund balance sheet reports. The combination provides a comprehensive funds accounting solution for small nonprofits, governments, and businesses.