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 ?