What Are Strengths And Weaknesses Of Fund Accounting?

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What Are Strengths And Weaknesses Of Fund Accounting?

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Answer 1

Fund accounting can play a crucial role as without it, one cannot truly analyse the revenues and expenses of a specific funding source. Fund accounting also allows you to evaluate each project and/or activity individually; having results for the drawdown of funds in LOCCS is another advantage of the system.

Budgets are the most widely used method for control in colleges and universities. Fund accounting assists in budget control through providing information to enable managers to keep expenditures within allocation and demonstrate compliance with funding sources. Budget entries are the reverse of financial entries; revenue entries are budgetary debits and appropriations to expenditure accounts are budgetary credits.

Fund accounting is an accounting system emphasising accountability rather than profitability, used by non-profit organisations and governments. In this system, a fund is a self-balancing set of accounts, segregated for specific purposes in accordance with laws and regulations or special restrictions and limitations

The label, fund accounting, has also been applied to investment accounting, portfolio accounting or securities accounting; all synonyms describing the process of accounting for a portfolio of investments such as securities, commodities and/or real estate held in an investment fund such as a mutual fund or hedge fund. However, investment accounting is a different system, unrelated to government and non-profit fund accounting.

Answer 2

Fund accounting is full of issues in which the accounting does not reflect the true, intrinsic value of the fund. As in other types of accounting, at best it is a crude approximation as to what is important in the fund. Moreover, its accounting cannot fulfill simultaneously the demands of different groups, among them investors, investment manager, tax authorities, auditors, and potential partners. There are some tradeoffs that have to be made usually in a conservative manner.

Answer 3

Motivated by the financial difficulties that have beset city governments and some private nonprofit organizations, the accounting profession and other circles are urging these organizations to conform to business accounting practices. (See Robert N. Anthony's article on p. 83 of this issue.) Fund accounting, these reformers claim, is too complex, too segmented to permit intelligent analysis. The authors of this article demur; not only is it legally and logically necessary to maintain separately the restricted and unrestricted monies received from various sources and spent for designated purposes; also close examination of the financial statements of nonprofit enterprises can provide a very good idea of how well they are doing financially. Furthermore, the authors advocate adoption of certain fund accounting principles for businesses, and they show why they could be helpful. This article is much more than a defense of how nonprofit organizations account for their operations; it is a comprehensive but brief introduction to the subject.