What does "fund accounting" refer to?

Fund accounting refers to an accounting system primarily used by non-profit organizations and government entities. This approach enables these organizations to manage and track resources that are allocated for specific purposes, ensuring that funds are utilized in accordance with legal requirements and donor restrictions. By categorizing funds into separate "accounts," each designated for a particular project, program, or grant, fund accounting allows organizations to demonstrate accountability and transparency in how they utilize resources.

This method contrasts with traditional corporate accounting, where revenue is tracked as a whole rather than by specific funding sources and restrictions. It is essential for maintaining compliance with regulations and for reporting to stakeholders, such as donors and government agencies, who need assurances that funds are being used as intended.