Fund accounting software is usually used by large organizations with complicated accounts to be managed. Fund accounting software is also used by non-profit organizations which are dependent on funding from external agencies. Fund accounting software is getting increasingly sophisticated by the day, with the regular addition of added features.
Non-profit organizations need fund accounting methods, for maintaining track of their funding. In order to do that, they usually maintain a separate balance sheet date for each account. The balance sheet consists of things like assets, liabilities, or fund balance. Fund accounting software is therefore advanced software ideally suited for complex accounting functions. Smaller businesses which do not require such complicated calculations usually go in for other relatively simpler software like QuickBooks or One-Write Plus.
There are many vendors in the market with their own versions of fund accounting software. While going in for fund accounting software, it is always recommended that you check whether the package is complying with the regulations being promulgated by the Financial Accounting Standards Board. This is important particularly in the case of non-profits who have to tabulate gifts and present their financial information in the form of audited statements.
The smaller nonprofits usually go in for fund accounting software with relatively lesser number of features, enabling them to do things like generate simple financial reports. The larger nonprofits usually go in for the more advanced versions of fund accounting software with additional features, enabling them to perform complicated accounts. Whatever may be the size of the nonprofit, one thing to keep in mind is to have an accountant or a bookkeeper with domain area expertise, which will help in using the software in the first place. This is important because inexperienced staff will find some of the software difficult to understand and therefore use.
Nonprofit and church accounting is unique because most churches and nonprofits use fund accounting.
“Fund Accounting “is an accounting method that groups assets and liabilities according to the specific purpose for which they are to be used. It helps to keep restricted (special) and unrestricted (general) funds separate.
Since the mid 1990′s pure fund accounting has been replaced by the Statement of Financial Accounting Standards (SFAS) Numbers 116 and 117, which describes the way nonprofits should account for contributions, and present their financial statements.
The emphasis of the SFAS financial statement reporting is now on “net assets” classification, rather than tracking each fund. (Net assets means more or less the same as owner’s equity or net worth in a for-profit business.)
The net asset categories are:
Unrestricted: These funds are donations that are available to use toward any purpose. Unrestricted funds usually go toward the operating expenses of the organization. Temporary Restricted: These funds may be restricted by purpose or time, but the restrictions are not permanent. An example of a purpose-restricted gift is a gift for a certain project or for the purchase of equipment. An example of a time-restricted gift is a contribution of a trust, annuity, or term endowment where the principal of the gift is restricted for a certain term of time. Permanently Restricted: These funds are gifts restricted by a donor for a designated purpose or time restriction that will never expire. An example is an endowment gift with the stipulation that the principal is permanently unavailable for spending, but the investment income from the principal may be used in current operations.
Net assets can now be combined into these three categories and you are no longer required to track each fund individually. However, many small churches and nonprofits continue to use fund accounting, even though they no longer have to produce year end reports on a fund-by-fund basis.
These organizations find that tracking their financial activities internally is easier if they stay with the fund accounting method.
Profit oriented businesses only have one set of self-balancing accounts or general ledger. However, churches and nonprofits can have more than one general ledger depending on their need.
For example…you may have one general ledger account titled “General Fund” which all unrestricted funds pass through. Then you may have several more general ledger accounts titled “Missions”, “Building Fund”, “Vacation Bible School”, etc. which restricted funds pass through. These are funds that are set aside for a specific purpose.
An example of this would be if your church sponsors a church camp every year and pays the preparation costs beforehand. Donations from parents during the church camp recapture the up-front cost and maybe a little bit more. Without fund accounting, the church would simply see the expense of the church camp out of the general fund, and the church camp specific donations would be accumulated with other donations. The church would not be able to document the net cost of the church camp.
Church fund accounting software helps everybody. That’s because good records and reports are cornerstones of accountability. Build proper controls into an accounting system and the treasurer job gets easier. But how do you choose an accounting system?
What are the requirements?
First determine what you need. Do you need accounting for several funds? Probably. What kind of reports would you like to generate? How about payroll? Is this done outside or do you need payroll software? Thinking about what you need is the first step in choosing a system?
What about support?
The initial cost of any software is only part of the total cost. Training and learning are usually significant costs too. That’s why you want software that’s complex enough to do the job, but not more complex than is necessary. Who will you call when you have problems? Often a local accounting firm will help you if you have software from a major company. But with free software from an unknown source you may be on your own.
Accounting for self defense.
Churches often have very poor accounting controls. That means just one person handles much of the finances and for a long period of time. This is often a disaster. There should be clear involvement by more than one person in every phase of handling the money. This is the way to maintain trust and protect the treasurer from any temptation and any suspicion too.
Choosing a fund accounting software depends on the needs of the group. Think about the kinds of reports you need to show income and disposition of the funds. Make sure you can get help to deal with accounting software problems. Also make sure the software is only part of an accounting system. Checks and balances are essential for a sound fund accounting system.