Fund Based Accounting
Fund based accounting is used in not-for profit organizations, charitable trusts and NGOs. It means, to classify all the short and long term revenue sources in to different funds. After this, we record different transactions relating to fund in its fund account. With this, we can track the revenues and expenses of any specific fund account.
Now, we explain the Steps of Accounting in Fund based accounting
1st step: Classify the Funds
In not profit organization, members do not bring the capital but they bring donation. Initial donation should be classify in different funds and fund accounts should be open. For example, we are have started a charitable trust for providing free education to orphan children. For this, we have got initial donation from our members. We can transfer this donation to different funds. We can make:
a) School Building Fund b) Orphan Home Fund c) Free Education Fund d) General Expenses Fund You can also classify more than above classification of fund. 2nd Step: Make the Budget
Before using the fund, it is the duty of accountant to make the budget. For example, we have to make school building. So, what will be the total cost of building? What expenses will be paid for constructing the building. What amount will we get and from what sources will we get?