Fund accounting-General Ledger accounting-accounting ledger-types of accounting

What is Fund accounting-General Ledger accounting-accounting ledger-types of accounting

Fund accounting is an accounting system emphasizing accountability rather than profitability, used by non-profit organizations 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. Investment accounting, however, is a different system, unrelated to government and nonprofit fund accounting.

Fund accounting-General Ledger accounting-accounting ledger-types of accounting

The accrual basis of accounting used by most businesses requires revenue to be recognized when it is earned and expenses to be recognized when the related benefit is received. Revenues may actually be received during a later period, while expenses may be paid during an earlier or later period. (Cash basis accounting, used by some small businesses, recognizes revenue when received and expenses when paid.)The main accounting record of a business which uses double-entry bookkeeping. It will usually include accounts for such items as current assets, fixed assets, liabilities, revenue and expense items, gains and losses. Each General Ledger is divided into debits and credits sections. The left hand side lists debit transactions and the right hand side lists credit transactions. This gives a ‘T’ shape to each individual general ledger account.

Fund accounting-General Ledger accounting-accounting ledger-types of accounting

The general ledger is a collection of the group of accounts that supports the value items shown in the major financial statements. It is built up by posting transactions recorded in the sales daybook, purchases daybook, cash book and general journals daybook. The general ledger can be supported by one or more subsidiary ledgers that provide details for accounts in the general ledger. For instance, an accounts receivable subsidiary ledger would contain a separate account for each credit customer, tracking that customer’s balance separately. This subsidiary ledger would then be totaled and compared with its controlling account (in this case, Accounts Receivable) to ensure accuracy as part of the process of preparing a trial balance.

Fund accounting-General Ledger accounting-accounting ledger-types of accounting

Proprietary funds, used for business-like activities, usually operate on an accrual basis. Governmental accountants sometimes refer to the accrual basis as “full accrual” to distinguish it from modified accrual basis accounting. The accounting basis applied to fiduciary funds depends upon the needs of a specific fund. If the trust involves a business-like operation, accrual basis accounting would be appropriate to show the fund’s profitability. Accrual basis is also appropriate for trust funds using interest and dividends from invested principle amounts to pay for supported programs, because the profitability of those investments would be important.

The balance sheet and the income statement are both derived from the general ledger. Each account in the general ledger consists of one or more pages. The general ledger is where posting to the accounts occurs. Posting is the process of recording amounts as credits, (right side), and amounts as debits, (left side), in the pages of the general ledger. Additional columns to the right hold a running activity total (similar to a checkbook).

The listing of the account names is called the chart of accounts. The extraction of account balances is called a trial balance. The purpose of the trial balance is, at a preliminary stage of the financial statement preparation process, to ensure the equality of the total debits and credits.

The general ledger should include the date, description and balance or total amount for each account. It is usually divided into at least seven main categories. These categories generally include assets, liabilities, owner’s equity, revenue, expenses, gains and losses. The main categories of the general ledger may be further subdivided into sub-ledgers to include additional details of such accounts as cash, accounts receivable, accounts payable, etc.

Fund accounting-General Ledger accounting-accounting ledger-types of accounting

Managerial Accounting

Although distinguishing between financial and managerial accounting is convenient, the distinction is somewhat blurred. For example, financial accounting provides information about the performance of a firm to outsiders. Because this information is essentially a performance report on management, managers are appropriately interested in and influenced by financial accounting information. Accordingly, the distinction between financial and managerial accounting depends on who is the primary user of the information

Financial Accounting

Financial accounting provides information to decision makers who are external to the business. Creditors and potential creditors are also served by financial accounting. Financial accounting will usually provide at least some of the information needed by these decision makers.

Tax accounting

Tax accounting encompasses two related functions: tax compliance and tax planning.

Fund accounting-General Ledger accounting-accounting ledger-types of accounting

- Manish Kapoor