Question

1.What is fund accounting
2. Why is fund accounting used – benefits of using fund accounting
3.How many funds are used in state and local government accounting

Answer 1

1. MEANING OF FUND ACCOUNTING-

FUND ACCOUNTING is an accounting system that are used to recording of resources limited by donating agencies. In easy language, Fund Accounting is an accounting system in which funds received from various sources, are recorded to check that the purpose of fund is efficiently completed.

2. FUND ACCOUNTING IS USED AS FUND ACCOUNTING is an accounting system which is mostly used by non-profit organisations or government organisations. These organisations used fund accounting to track the amount of cash assigned to different purposes and the usage of that cash , i.e non-profit organisations use fund accounting system to account funds received from various sources like donation, charity etc . They record all types of funds to check whether the fund received for the intended purpose,has been used for that purpose. For example, Government has separate funds like Street repairs, sewage treatment and schools etc . Government records all the funds to check how efficient and effectively , the funds was used. A separate budget has been made for each fund . By doing so, the manager of any non-profit organisations or government organisations can track the amount of expenditure against the available fund and manage the expenditure level. So, that the fund can be used for the purpose for which the fund is received efficiently.

The purpose of adopting fund accounting system is to track the amount of cash assigned to different purposes and the usage of that cash and not to track whether an entity has generated profit or not. The basic focus of fund accounting is to record the funds , for accountibility not profitablity.

Some Benefits of using fund accounting are :-

A) ASSET ISOLATION - Fund Accounting System is used in non - profit organisations and government organisations. So, there aim is to achieve success in there purpose. In this accounting system, it has ability to isolate the assets needed to meet a specific purpose.

B) ACCOUNTABILITY- FUND ACCOUNTING'S main focus is on accountability not in profitability, which is the most important benifit of using fund accounting system.

3. THERE ARE THREE TYPES OF FUND USED IN STATE AND LOCAL GOVERNMENT ACCOUNTING:-

1- GOVERNMENT FUNDS

2- PROPERTY FUNDS

3- FIDUCIARY FUND

THESE THREE ARE MAINLY CLASSIFIED AS-

1) GOVERNMENT FUNDS INCLUDES:-

a. General fund- General fund is the fund which is used in general operations and activities.

b. SPECIFIC FUND- Specific fund is used to account for the use of revenue appropriate by law for particular purpose. It is fund used or given for Specific purposes.

c. CAPITAL PROJECTS FUND- This funds are used to account for the construction or acquisition of capital projects like fixed assets like building, equipment and roads etc.

d. DEBT SERVICE FUND - This funds are used to account for money that will be used to pay long term debts. For example- Bonds used by government to finance major construction projects to be paid by tax levies over a period of time, need a debt service fund.

e. PERMANENT FUND- This funds are used to report resources that are legally restricted to the extent ,used for purposes that help or support the reporting government programs.

2) PROPERTY FUNDS INCLUDES :-

a. INTERNAL SERVICE FUND- This fund are established to account for any activity that provides goods or services to other fund , department of primary government or its parts.

b. ENTERPRISE FUNDS- This funds are used for services provided to the public on a user charge basis or charging fee for services .

3) FIDUCIARY FUNDS- This funds are used to account for assets held in trust by the government for the benifits of citizens or other entities.