Fund Accounting: Definition, Process, Advantages & Disadvantages

Fund accounting comprises an accounting approach deployed by nonprofit organizations to track the amount of money assigned to various purposes and the rate of usage of the money. The primary objective of fund accounting is not to generate insights into profits, but it helps to enhance transparency and accountability in the organization (Lagasih, 2020) . Some of the organizations that are likely to use fund accounting techniques include charity organizations, some hospital facilities, and governments. Fund accounting is essential when identifying the rate of resource usage in nonprofit organizations. The major difference between the normal accounting process in profit organizations and fund accounting is that fund accounting is not aimed at establishing the profits made by the organization, while the normal accounting in profit organizations is aimed at examining the profits made by the organization. 

I believe that fund accounting is an effective accounting technique for the government compared to the traditional methods of accounting used by governments. The fund accounting technique is more simple and easy to interpret. It gives highlights of where the finances in the organization are coming from and eventually how they are spent. Government exists as nonprofit organizations. Governments have various departments. There is a need to establish how the finances are used in all the departments. The use of fund accounting helps to detect any existing misappropriation of funds for the appropriate actions to be executed. However, the traditional accounting systems in governments were less efficient (Lagasih, 2020) . The traditional accounting units were more complicated than the fund accounting technique. Many governments today are utilizing fund accounting due to the many associated benefits. Resources are limited, and there need to locate them efficiently. The use of fund accounting techniques helps governments to use and allocate resources optimally. By using fund accounting, the government makes decisions on which sectors require more resources. 

Reference 

Lagasih, R. S. (2020). The Design of Fund Accounting Application at Educational Institution Yapendik Gpib Makassar.  Available at SSRN 3525296 .