How Fund Accounting for Charities Works
Keeping track of multiple funds is one of the fundamental differences between commercial accounts and charity accounts.
Here's how multi fund accounting works in Paxton Charities Accounting:
You receive £1000 in donations for the general operation of the charity.
When booked to the accounts this would show :-
Note that classic double entry book-keeping gives a positive bank balance and an equal and opposite negative income analysis.
You now pay out £60 for stationery and £100 for postage.
After booking to the accounts the totals would be :-
Note again that the totals add up to zero due to double entry book-keeping.
You now raise money via donations for a Youth scheme that you are running. As the money has been raised for the Youth scheme it must be seen to be spent for that purpose. Hence, the Youth scheme accounts need to be kept separate but still within the bounds of the charity. This is accomplished through the use of FUNDS that allow you completely manage separate accounts within the one
So, each fund is in a separate column with its own income and expenditure figures AND you know that of the £1390 in the bank account, £840 belongs to the General fund and £550 belongs to the YOUTH fund. Note again that the totals for each fund column add up to zero.
The above illustration highlights the fundamental principle of charities accounting and why it differs from normal commercial accounting. The monies raised and expended need to be kept in the appropriate 'pot' for the purpose intended.
The Paxton Charities Accounting packages conform to this multi fund architecture. You will be able to add as many different funds as required and then be able to :-
Produce a complete income and expenditure (or receipts and payment) report for any individual fund as well as for any group of funds and for the whole charity consolidated.
Know exactly how much money is still available in any of the funds even though all funds might share the same bank account(s).
Produce budgets for any fund with variance reporting against actual performance.
Provide accurate status reporting to your donors and funders.
Instil confidence in potential funders that you have the proper tools to account for their donations and grants.
This is proper charities multi fund accounting.
You start with a chart of accounts
main charity account. So now, you would have a General fund for the general running of the core activities of the charity and you would add a separate YOUTH FUND that we will show in a separate column. You now raise £750 in donations for the YOUTH fund and immediately spend £200 of that on posters and other promotional stationery. When booked to the accounts they would show :-