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Fund Accounting and Proprietary Accounting

What is fund accounting?
Fund accounting is the accounting system that government and not-for-profit organizations use to closely watch each individual fund that the organization has established. This is to closely monitor the revenue collected in comparison to expenditures.

How does fund accounting compare to proprietary accounting?
This fund basis of accounting differs from proprietary accounting in the sense that government and not-for-profits consider each fund as an individual, self-balancing set of accounts from which the organization’s financial statements can be prepared from; while proprietary accounting often uses the term funds to refer to working capital. Proprietary accounting will prepare financial statements for use by owners and shareholders, potential investors, creditors, vendors, and government agencies.

Why is this necessary?
It is necessary to conduct fund accounting for government and not-for-profit organizations so that each fund’s resources and activities are properly accounted for. When financial statements are prepared, each fund can be individually compared and analyzed for any changes, such as the fund balance and/or cash flows.

The various aspects of charity financials:
World Hunger Year is a not-for-profit organization that had total revenue of $1,984,445, $1,683,814 of which was comprised of primary revenue; and program expenses, administration expenses, and fundraising expenses which totaled $1,863,177.

For the American Red Cross, their income statement shows the revenues – primary and other, for a total revenue of $3,155,280,471, and expenses as program expenses, administrative expenses, and fundraising expenses for a total functional expense of $3,431,334,539.


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