Nonprofits have unique financial responsibilities — especially when it comes to managing restricted funds and grants. Fund accounting ensures that every dollar is tracked and used for its intended purpose.

What Is Fund Accounting?

Unlike traditional businesses, nonprofits use fund accounting to separate money by purpose or restriction. For example, a donation for a youth program can’t be used for administrative expenses. Each “fund” acts like a mini financial account, tracking income and expenses separately.

Why It Matters

Fund accounting builds trust with donors, ensures compliance with regulations, and provides clear visibility into how resources are used. It’s a cornerstone of accountability.

Common Fund Types

• Restricted Funds: Earmarked by donors or grantors for a specific purpose.
• Unrestricted Funds: Can be used for general operations.
• Board-Designated Funds: Set aside by your board for future projects or emergencies.

Best Practices

• Track all transactions by fund in your accounting software.
• Reconcile fund balances monthly.
• Document restrictions clearly to avoid confusion later.

At NPDM, we help nonprofits simplify fund tracking and reporting — giving you confidence that every dollar is properly managed and aligned with your mission.