Fund accounting is distinctive and is mostly used in non-profit organizations like churches. This shows that accounting is handled in a different way since their source of funds is from contributions. Churches are non-profit organizations, and to ensure there is a proper use of funds, they need to do fund accounting. In this way, they are able to keep a record of their expenditures hence liability. Accounting is crucial in every part of business and also every other area. In the articles are the reasons why fund accounting is important.
First, it keeps a track record. Most businesses have accountants, which is also required in these organizations to ensure proper use of funds. This way, they will be able to manage all the cash they have received in the best way. With the records, they can evaluate the expenditure and ensure that the people in charge are more responsible. When there is no track record, the funds may be misused, and to avoid this, the non-profit organizations need fund accounting. All the funds received and all the expenses are documented so as to ensure that there is accountability.
Secondly, it ensures accountability. For these types of organizations, they get their funds from different sources, and therefore all this needs to be managed in a proper way. They need to ensure that there is the proper allocation of the funds and ensure that the cash is spent in the right way. Since there are financial statements produced, then they need to ensure that they are accurate. Therefore, as they disburse the money to various departments, they will ensure that they record it. The accountants in these areas have received the best training and therefore they have the knowledge required to manage these accounts. In case there is any form of negligence on their side, they will be held responsible, and this shows that the funds are managed properly.
Lastly, they have tax-exempt status. The non-profit organizations are free from tax, which is in all levels from local to state level. To remain with this status, they need to ensure that they are compliant with the set rules. This is by ensuring that they are accountable for every spending and keeping a clear track record of their funds use. This is to ensure that they honor the various donors that have given them these funds. By remaining compliant, this shows that they are responsible for all the cash they receive and use it for the right purposes. That is why non-profit organizations need to ensure that they use fund accounting.grgra