For a clear example of fund accounting, assume your church has a building fund for an addition on the church. All the church members have been asked to donate to this fund by enclosing a donation in an envelope marked "Building Fund".


All the revenue collected for the building fund must be set aside in a fund specifically for this activity. None of this money can be used for anything else. When it comes time to begin building the addition on the church, then the money will be used from this particular fund.


A non-profit may have several different funds. All have a fund that is called a general fund where money goes that is not designated for any other specific purpose.


Non profits normally have to conform to a budget. Budgets are normally created annually and approved by the Board of Directors or other governing body. A monthly accounting of budget versus actual will be reviewed. Non profits may be prohibited from overspending any line item without approval from the governing body.


The challenge for this type of software then is to be able to segregate funds and to report each of these funds almost as though it were a separate company. Each fund will have its own financial statements that are reviewed by the governing body. A good software should also have budget reports that compare annual budgeted amounts to current year-to-date spending by line item.