Fund based accounting

-Kalyani Nandkishor Joshi

 Funds are cash or its equivalents. In accounting the term ‘fund’ is
used to include to securities which have a ready market and can
be converted into cash Funds also refer to assets to specific
purpose, which are not generally available for normal business
activities. Capital additions are non expendable gifts, grants, etc.
restricted by the owner or granted for a particular purpose, either
for an unlimited or a limited period of time. Accounting for capital
additions is known as fund based accounting.
 A fund may be defined as an accounting
equity “with a self balancing set of accounts
regarding cash and other resources together
with all related liabilities and residual equities
or balances, and changes therein, which are
segregated for the purpose of carrying specific
activities or attaining certain objectives in
accordance with specific purpose of
regulations restrictions or limitations”. Thus,
every fund is aimed at fulfilling some purpose
and the services embodied in the assets are the
primary means to achieve that purpose.
 Non-profit organisations may also set up a fund
for a special purpose. For example, a cricket club
may wish to acquire an electronic score board and
may set up a special fund for this puropse
 1) Unrestricted Fund
 2) Restricted Fund
 3) Endowment Fund
 4) Annuity Fund
 5) Loan Fund
 6) Agency Fund
 unrestricted Fund – An unrestricted funds
include all assets of a non-profit organisation
that available to use authorised by managing
committee, and are not restricted for specific
puroses.
 restricted Fund- A restricted hind is
generally established by a non-profit
organation to account for assets available for
current operation, but expendable only as
authorised by the donor of the assets.
  endowment Fund – ‘Endow’ means provide permanent
income for. An endowment fund is generally a non-expendable
fund. A pure endowment is one for which the principal must be
maintained indefinitely in income in income producing
investment. Only the income
can be expended. A term endowment fund can be expended only after
a specified period of time of the occurrence of an event specified by the
donor.
 An annuity fund is established when a non-profit
organisation receives assets from a donor with the
stipulation that the organisation pay specified amount
perodically to designated recipients, for a specified
time period.
 A loan fund may be established by any non-profit
organisation to grant loans to the members. Loan fund,
generally, are revolving, i.e. as old loan are repaid new
loans are made for receipts.
 An agency fund is used to account for money held by a
non- profit organisation as a custodian. The money is
disbursed only as instructed by their owner. For
examples, for lending books a club may ask for deposit
from members. The deposit is refunded to the member
when he does not want to avail of this facility. An
agency fund is shown as a than as a fund balance.
  Accounting standards mainly prescribe three
categories Of funds. Governmental, Proprietary, and
Fiduciary funds with each one to be treated as separate
entity. Requiring different treatment.
1) Government fund
2) Proprietary fund
3) Fiduciary fund
 The financial statements in this category are prepared
under the modified accrual basis of accounting. Under
the system, revenues are recognized susceptible to
accrual, and expenditures are recorded when the
related fund liability is incurred, as per the standard. In
accordance with this concept, current assets an current
liabilities alone are included in the balance sheet of the
fund.
 These are accounted on a flow of economic resources
measurements basis and are prepared under the accrual basis of
accounting. In accordance with this principle, all assets and
liabilities associated with the operation of these funds are
included in the balance sheet. The equity of the fund is segregated
into two components namely, contributed capital and retained
earnings.
 These are accounted on a flow of economic resources
measurement basis. Accordingly, all assets and liabilities
associated with the operation of these funds are included in the
balance sheet, and equity is segregated into contributed and a
retained. Tne financial statements of truth funds are prepared
under accrual basis and agency funds under modified accrual
method as described below