Before constructing your Chart of Accounts in FastFund Online, it is essential to understand the underlying principles of Fund Accounting. Unlike commercial accounting, which focuses on profit, nonprofit accounting focuses on accountability and stewardship. This lesson covers the definitions of funds versus assets, the classes of net assets required for reporting, and how FastFund manages these requirements.
Fund accounting is a system used by nonprofit organizations to ensure that resources are used only for their specified purposes. It is an accountability concept designed to track resources that are restricted by donors, grantors, or the governing board.
For example, if a donor gives $15,000 specifically for an educational program, fund accounting ensures that this money is tracked separately and not inadvertently spent on general administrative costs,.
Defining Key Terms: Fund, Asset, and Net Assets
It is common to confuse “funds” with “assets,” but in nonprofit accounting, they are distinct concepts:
• Fund: A part of an organization for which separate accounting records are kept. It is a self-balancing set of accounts.
• Asset: Valuable things owned or controlled by the organization, such as cash, investments, and property.
• Net Assets (Fund Balance): The mathematical result of subtracting Total Liabilities from Total Assets. Net Assets represent the net worth of the organization. Unlike assets, Net Assets exist only on paper; they have no intrinsic value and cannot be spent.
To comply with current accounting standards (FASB ASU 2016-14), nonprofits must report their resources in two specific classes for external financial statements:
1. Net Assets Without Donor Restrictions: This includes all assets available for general use. It encompasses what was formerly known as “Unrestricted,” “Operating,” or “General” funds. It also includes “Board-designated” funds, which are unrestricted assets set aside by the board for specific purposes.
2. Net Assets With Donor Restrictions: This class represents net assets subject to donor-imposed restrictions. This includes resources restricted for a specific purpose (e.g., a specific program), restricted by the passage of time, or permanently restricted endowments,.
FastFund Online allows you to maintain the detail necessary for internal management while easily generating compliant external reports.
• Internal Detail: You can set up as many individual funds (up to 999,999) as needed to manage grants, programs, and internal designations.
• External Consolidation: For public financial statements, FastFund uses the Financial Reports Set Manager to consolidate these detailed funds into the two required Net Asset classes.
This distinction allows you to track the minute details of every grant or donation internally without cluttering your public-facing financial statements