Donation received or funds set - up for specific purpose is credited to a separate fund account and is shown in the Liabilities side of the Balance Sheet . The incomes from or donations for these funds are credited to the funds account. On the other hand , expenses pr payments out of these funds are debited to it . Accounting when done on this basis is known as ' Funds Based Accounting '.
Thus , Funds Based Accounting means the accounting whereby receipts of donations and incomes relating to a particular fund are credited to that particular fund and payments and expenses are debited to it . Examples of such funds are : Building Funds, Library Funds , Sports Funds , Prize Funds , etc .
Categories of Funds :
In the case of Not - For - Profit Organisation , funds may be classified under following two heads :
1. Unrestricted Funds :
Unrestricted Funds not carry any restriction with respect to its use . In other words , management can use the amount in the funds as it deems appropriate , but to carry out the purpose for which the organisation exists . This funds is known as the General Funds or the Capital Funds to which the surplus for the year is added and in case of deficit , deducted .
2. Restricted Funds :
Restricted Funds is the fund , the use of which is restricted either by the management or the donor for a specified purpose . Examples of such funds are : Endowment Fund , Annuity Fund , Loan Fund , Prize Fund ,Sports Fund , etc .
(a) Endowment Fund :
" It is a funds usually of a non - profit institution , arising from bequest or gift , the income of which is devoted to a specified purpose .". - Kohler
Endowment Fund , thus is a donation with a condition by the donor to use only the income earned from the investment of such funds for the specified purpose so that the original donated amount remains intact .
( b) Annuity Fund :
An annuity fund is established when a Not - For - Profit Organisation receives assets from a donor with a condition to pay specified amount periodically to designated beneficiary or beneficiaries . Annuity is a fixed annual ( normally ) payment and usually , continue only during the lifetime of the named beneficiary or for the period stipulated by the donor . Annuity Fund donation , thereafter , becomes the property of the organisation .
( c) Loans Funds :
Loan Fund is set - up to grant loans for specific purposes say to pursue higher studies .
(d) Fixed Assets Funds :
Fixed Assets Fund is a fund earmarked for investment in fixed assets or already invested in fixed assets . Examples of Fixed Assets Fund is ' Building Fund '.
( e) Prize Fund:
Prize Fund is a fund set - up to use for distribution as prizes say for achievements or contribution to the welfare of the society .
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