Fund accounting is an accounting system for recording resources whose use has been limited by the donor, grant authority, governing agency, or other individuals or organisations or by law. It emphasizes accountability rather than profitability, is used by Nonprofit organizations and by governments. In this method, a fund consists of a self-balancing set of accounts and each are reported as either unrestricted, temporarily restricted or permanently restricted based on the provider-imposed restrictions; the label fund accounting has 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. Nonprofit organizations and government agencies have special requirements to show, in financial statements and reports, how money is spent, rather than how much profit was earned.
Unlike profit oriented businesses, which use a single set of self-balancing accounts, nonprofits can have more than one general ledger, depending on their financial reporting requirements. An accountant for such an entity must be able to produce reports detailing the expenditures and revenues for each of the organization's individual funds, reports that summarize the organization's financial activities across all of its funds. Fund accounting distinguishes between two primary classes of fund; those funds that have an unrestricted use, that can be spent for any purposes by the organization and those that have a restricted use. The reason for the restriction can be for a number of different reasons. Examples include legal requirements, where the moneys can only be lawfully used for a specific purpose, or a restriction imposed by the donor or provider; these donor/provider restrictions are communicated in writing and may be found in the terms of an agreement, government grant, will or gift. When using the fund accounting method an organization is able to therefore separate the financial resources between those available for ongoing operations and those intended for a donor specified reason.
This provides an audit trail that all moneys have been spent for their intended purpose and thereby released from the restriction. An example may be a local school system in the United States, it receives a grant from the its local state government to support a new special education initiative, another grant from the federal government for a school lunch program, an annuity to award teachers working on research projects. At periodic intervals, the school system needs to generate a report to the state about the special education program, a report to a federal agency about the school lunch program, a report to another authority about the research program; each of these programs has its own unique reporting requirements, so the school system needs a method to separately identify the related revenues and expenditures. This is done by establishing separate funds, each with its own chart of accounts. Nonprofit organization's finances are broken into two primary categories and restricted funds; the number of funds in each category can change over time and are determined by the restrictions and reporting requirements by donors, board, or fund providers.
Unrestricted funds are, as their name suggests and therefore organizations don't need more than a single General Fund, however many larger organizations use several to help them account for the unrestricted resources. Unrestricted funds may include: General fund - This is the minimum fund needed for unrestricted resources and relates to current as well as non-current assets and related liabilities which can be used at the discretion of the organisation's governing board. Designated fund - assets which have been assigned to a specific purpose by the organisation's governing board but are still unrestricted as the board can cancel the desired use. Trading funds - Many large non-profit organisations now have shops and other outlets where they raise funds from selling goods and services; the profits from these are used for the purpose of the organisations. Plant fund - Some organizations hold their non-current assets and related liabilities in a separate fund from the current assets. Current fund – unrestricted - If the organization holds his non-current assets in a plant fund this is used to account for current assets that can be used at the discretion of the organization's governing board.
Restricted funds may include: Endowment funds - permanent are used to account for the principal amount of gifts or grants the organization is required, by agreement with the donor, to maintain intact in perpetuity or until a specific future date/event or has been used for the purpose for which it was given. Endowment funds - temporary are similar to permanent endowment funds except that at a future time or after a specified future event the endowment become available for unrestricted or purpose-restricted use by the organization Annuity and Life-Income Funds are resources provided by donors where the organization has a beneficial interest but is not the sole beneficiary; these may include charitable gift annuities or life income funds. Agency or Custodian funds are held to account for resources before they are disbursed according to the donor's instructions; the organisation has little or no discretion over the use of these resources and always equal liabilities in agency accounts. Current funds – restricted are current assets subject to restrictions assigned by donors or grantors.
Like Profit making organizations and governments
Accounting or accountancy is the measurement and communication of financial information about economic entities such as businesses and corporations. The modern field was established by the Italian mathematician Luca Pacioli in 1494. Accounting, called the "language of business", measures the results of an organization's economic activities and conveys this information to a variety of users, including investors, creditors and regulators. Practitioners of accounting are known as accountants; the terms "accounting" and "financial reporting" are used as synonyms. Accounting can be divided into several fields including financial accounting, management accounting, external auditing, tax accounting and cost accounting. Accounting information systems are designed to support related activities. Financial accounting focuses on the reporting of an organization's financial information, including the preparation of financial statements, to the external users of the information, such as investors and suppliers.
The recording of financial transactions, so that summaries of the financials may be presented in financial reports, is known as bookkeeping, of which double-entry bookkeeping is the most common system. Accounting is facilitated by accounting organizations such as standard-setters, accounting firms and professional bodies. Financial statements are audited by accounting firms, are prepared in accordance with accepted accounting principles. GAAP is set by various standard-setting organizations such as the Financial Accounting Standards Board in the United States and the Financial Reporting Council in the United Kingdom; as of 2012, "all major economies" have plans to converge towards or adopt the International Financial Reporting Standards. The history of accounting is thousands of years old and can be traced to ancient civilizations; the early development of accounting dates back to ancient Mesopotamia, is related to developments in writing and money. By the time of Emperor Augustus, the Roman government had access to detailed financial information.
Double-entry bookkeeping was pioneered in the Jewish community of the early-medieval Middle East and was further refined in medieval Europe. With the development of joint-stock companies, accounting split into financial accounting and management accounting; the first work on a double-entry bookkeeping system was published by Luca Pacioli. Accounting began to transition into an organized profession in the nineteenth century, with local professional bodies in England merging to form the Institute of Chartered Accountants in England and Wales in 1880. Both the words accounting and accountancy were in use in Great Britain by the mid-1800s, are derived from the words accompting and accountantship used in the 18th century. In Middle English the verb "to account" had the form accounten, derived from the Old French word aconter, in turn related to the Vulgar Latin word computare, meaning "to reckon"; the base of computare is putare, which "variously meant to prune, to purify, to correct an account, hence, to count or calculate, as well as to think."The word "accountant" is derived from the French word compter, derived from the Italian and Latin word computare.
The word was written in English as "accomptant", but in process of time the word, always pronounced by dropping the "p", became changed both in pronunciation and in orthography to its present form. Accounting has variously been defined as the keeping or preparation of the financial records of an entity, the analysis and reporting of such records and "the principles and procedures of accounting". Accountancy refers to the occupation or profession of an accountant in British English. Accounting has several subfields or subject areas, including financial accounting, management accounting, auditing and accounting information systems. Financial accounting focuses on the reporting of an organization's financial information to external users of the information, such as investors, potential investors and creditors, it calculates and records business transactions and prepares financial statements for the external users in accordance with accepted accounting principles. GAAP, in turn, arises from the wide agreement between accounting theory and practice, change over time to meet the needs of decision-makers.
Financial accounting produces past-oriented reports—for example the financial statements prepared in 2006 reports on performance in 2005—on an annual or quarterly basis about the organization as a whole. This branch of accounting is studied as part of the board exams for qualifying as an actuary; these two types of professionals and actuaries, have created a culture of being archrivals. Management accounting focuses on the measurement and reporting of information that can help managers in making decisions to fulfill the goals of an organization. In management accounting, internal measures and reports are based on cost-benefit analysis, are not required to follow the accepted accounting principle. In 2014 CIMA created the Global Management Accounting Principles; the result of research from across 20 countries in five continents, the principles aim to guide best practice in the d
Forensic accounting, forensic accountancy or financial forensics is the specialty practice area of accounting that describes engagements that result from actual or anticipated disputes or litigation. "Forensic" means "suitable for use in a court of law", it is to that standard and potential outcome that forensic accountants have to work. Forensic accountants referred to as forensic auditors or investigative auditors have to give expert evidence at the eventual trial. All of the larger accounting firms, as well as many medium-sized and boutique firms and various police and government agencies have specialist forensic accounting departments. Within these groups, there may be further sub-specializations: some forensic accountants may, for example, just specialize in insurance claims, personal injury claims, anti-money-laundering, construction, or royalty audits. Forensic accounting is defined as "the application of investigative and analytical skills for the purpose of resolving financial issues in a manner that meets standards required by courts of law.
Forensic accountants apply special skills in accounting, finance, quantitative methods, certain areas of the law and investigative skills to collect and evaluate evidential matter and to interpret and communicate findings."Financial forensic engagements may fall into several categories. For example: Economic damages calculations, whether suffered through tort or breach of contract. Forensic accountants assist in professional negligence claims where they are assessing and commenting on the work of other professionals. Forensic accountants are engaged in marital and family law of analyzing lifestyle for spousal support purposes, determining income available for child support and equitable distribution. Engagements relating to criminal matters arise in the aftermath of fraud, they involve the assessment of accounting systems and accounts presentation—in essence assessing if the numbers reflect reality. Some forensic accountants specialize in forensic analytics, the procurement and analysis of electronic data to reconstruct, detect, or otherwise support a claim of financial fraud.
The main steps in forensic analytics are data collection, data preparation, data analysis, reporting. For example, forensic analytics may be used to review an employee's purchasing card activity to assess whether any of the purchases were diverted or divertible for personal use. Forensic accountants, investigative accountants or expert accountants may be involved in recovering proceeds of serious crime and in relation to confiscation proceedings concerning actual or assumed proceeds of crime or money laundering. In the United Kingdom, relevant legislation is contained in the Proceeds of Crime Act 2002. Forensic accountants hold the following qualifications. In India there is a separate breed of forensic accountants called Certified Forensic Accounting Professionals; the Certified Forensic Accountant program from the American Board of Forensic Accounting assesses Certified Public Accountants knowledge and competence in professional forensic accounting services in a multitude of areas. Forensic accountants may be involved in investigative accounting.
The American Board of Forensic Accounting was established in 1993. In 2016, the Forensic Auditors Certification Board of England and Wales was established by the major forensic auditing and accounting bodies from across the world with its registered address in London. FACB is a professional bodies membership body comprising the International Institute of Certified Forensic Accountants of USA, Institute of Forensic Auditors of Zimbabwe, Institute of Forensic Accountants of Pakistan, Institute of Certified Forensic Accountants of USA and Canada and the Institute of Forensic Accountants of Nigeria. FACB plays several roles and one the roles is standardization of the examination and certification of forensic auditors globally. Forensic auditors and accountants sit for one examination, set by FACB and upon passing and meeting all the professional requirements, are awarded the credential, Certified Forensic Auditor or the Registered Forensic Auditor for practitioners who intend to go into public practice.
All certification is renewed on an annual basis. Apart from practitioners certification, FACB is an oversight body which accredits prospective member organization before admission as part of quality checks. Persons with the FACB credential can practice as forensic auditors on a global scale. Large accounting firms have a forensic accounting department. Forensic accounting and fraud investigation methodologies are dif
Liability (financial accounting)
In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. A liability is defined by the following characteristics: Any type of borrowing from persons or banks for improving a business or personal income, payable during short or long time. An equitable obligation is a duty based on moral considerations. A constructive obligation is an obligation, implied by a set of circumstances in a particular situation, as opposed to a contractually based obligation; the accounting equation relates assets and owner's equity: Assets = Liabilities + Owner's Equity The accounting equation is the mathematical structure of the balance sheet. The most accepted accounting definition of liability is the one used by the International Accounting Standards Board.
The following is a quotation from IFRS Framework: A liability is a present obligation of the enterprise arising from past events, the settlement of, expected to result in an outflow from the enterprise of resources embodying economic benefits Regulations as to the recognition of liabilities are different all over the world, but are similar to those of the IASB. Examples of types of liabilities include: money owing on a loan, money owing on a mortgage, or an IOU. Liabilities are debts and obligations of the business they represent as creditor's claim on business assets. Liabilities are reported on a balance sheet and are divided into two categories: Current liabilities — these liabilities are reasonably expected to be liquidated within a year, they include payables such as wages, accounts and accounts payable, unearned revenue when adjusting entries, portions of long-term bonds to be paid this year, short-term obligations. Long-term liabilities — these liabilities are reasonably expected not to be liquidated within a year.
They include issued long-term bonds, notes payables, long-term leases, pension obligations, long-term product warranties. Liabilities of uncertain value or timing are called provisions; when a company deposits cash with a bank, the bank records a liability on its balance sheet, representing the obligation to repay the depositor on demand. In accordance with the double-entry principle, the bank records the cash, itself, as an asset; the company, on the other hand, upon depositing the cash with the bank, records a decrease in its cash and a corresponding increase in its bank deposits. A debit either decreases a liability. According to the principle of double-entry, every financial transaction corresponds to both a debit and a credit; when cash is deposited in a bank, the bank is said to "debit" its cash account, on the asset side, "credit" its deposits account, on the liabilities side. In this case, the bank is debiting an asset and crediting a liability, which means that both increase; when cash is withdrawn from a bank, the opposite happens: the bank "credits" its cash account and "debits" its deposits account.
In this case, the bank is crediting an asset and debiting a liability, which means that both decrease. Contingent liability Assets Financial Accounting
A budget is a financial plan for a defined period one year. It may include planned sales volumes and revenues, resource quantities and expenses, assets and cash flows. Companies, governments and other organizations use it to express strategic plans of activities or events in measurable terms. A budget is the sum of money allocated for a particular purpose and the summary of intended expenditures along with proposals for how to meet them, it may include a budget surplus, providing money for use at a future time, or a deficit in which expenses exceed income. A budget is a quantified financial plan for a forthcoming accounting period. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods. In other terms, a budget is an organizational plan stated in monetary terms. In summary, the purpose of budgeting tools: Tools provide a forecast of revenues and expenditures, that is, construct a model of how a business might perform financially if certain strategies and plans are carried out.
Tools enable the actual financial operation of the business to be measured against the forecast. Lastly, tools establish the cost constraint for program, or operation; the budget of a company is compiled annually, but may not be a finished budget requiring considerable effort, is a plan for the short-term future allows hundreds or thousands of people in various departments to list their expected revenues and expenses in the final budget. If the actual figures delivered through the budget period come close to the budget, this suggests that the managers understand their business and have been driving it in the intended direction. On the other hand, if the figures diverge wildly from the budget, this sends an'out of control' signal, the share price could suffer. Campaign planners incur two types of cost in any campaign: the first is the cost of human resource necessary to plan and execute the campaign; the second type of expense that campaign planners incur is the hard cost of the campaign itself.
A budget is a fundamental tool for an event director to predict with a reasonable accuracy whether the event will result in a profit, a loss or will break-even. A budget can be used as a pricing tool. There are two basic philosophies, when it comes to budgeting. One approach is telling you on mathematical models, the other on people; the first school of thought believes that financial models, if properly constructed, can be used to predict the future. The focus is on variables and outputs, drivers and the like. Investments of time and money are devoted to perfecting these models, which are held in some type of financial spreadsheet application; the other school of thought holds that it's not about models, it's about people. No matter how sophisticated models can get, the best information comes from the people in the business; the focus is therefore in engaging the managers in the business more in the budget process, building accountability for the results. The companies that adhere to this approach have their managers develop their own budgets.
While many companies would say that they do both, in reality the investment of time and money falls squarely in one approach or the other. The budget of a government is a summary or plan of the intended revenues and expenditures of that government. There are three types of government budget: the operating or current budget, the capital or investment budget, the cash or cash flow budget; the budget is prepared by the Treasury team led by the Chancellor of the Exchequer and is presented to Parliament by the Chancellor of the Exchequer on Budget Day. It is customary for the Chancellor to stand on the steps of Number 11 Downing Street with his or her team for the media to get photographic shots of the Despatch Box prior to them going to the House of Commons. Once presented in the House of Commons it is debated and voted on. Minor changes may be made however with the budget being written and presented by the party with the majority in the House of Commons, the Whips will ensure that it is passed as written by the Chancellor.
The federal budget is prepared by the Office of Management and Budget, submitted to Congress for consideration. Invariably, Congress makes substantial changes. Nearly all American states are required to have balanced budgets, but the federal government is allowed to run deficits; the budget is prepared by the Budget Division Department of Economic Affairs of the Ministry of Finance annually. The Finance Minister is the head of the budget making committee; the present Indian Finance minister is Arun Jaitley. The Budget includes supplementary excess grants and when a proclamation by the President as to failure of Constitutional machinery is in operation in relation to a State or a Union Territory, preparation of the Budget of such State; the first budget of India was submitted on 18 February 1869 by James Wilson. James Wilson is known as the father of Indian budget; the Philippine budget is considered the most complicated in the world, incorporating multiple approaches in one single budget system: line-item and zero-based budgeting.
The Department of Budget and Management prepares the National Expenditure Program and forwards it to the Committee on Appropriations of the House of Representatives to come up with a General Appropriations Bill. The GAB will go through voting. After both houses of Congress approves the GAB, the Presid
An accountant is a practitioner of accounting or accountancy, the measurement, disclosure or provision of assurance about financial information that helps managers, tax authorities and others make decisions about allocating resource. In many jurisdictions, professional accounting bodies maintain standards of practice and evaluations for professionals. Accountants who have demonstrated competency through their professional associations' certification exams are certified to use titles such as Chartered Accountant, Chartered Certified Accountant or Certified Public Accountant; such professionals are granted certain responsibilities by statute, such as the ability to certify an organization's financial statements, may be held liable for professional misconduct. Non-qualified accountants may be employed by a qualified accountant, or may work independently without statutory privileges and obligations. Cahan & Sun used archival study to find out that accountants’ personal characteristics may exert a significant impact during the audit process and further influence audit fees and audit quality.
The Big Four auditors are the largest employers of accountants worldwide. However, most accountants are employed in commerce and the public sector. In the Commonwealth of Nations, which include the United Kingdom, Australia, New Zealand, Hong Kong pre-1997, several other states recognised accounting qualifications are Chartered Certified Accountant, Chartered Accountant, Chartered Management Accountant and International Accountant. Other qualifications in particular countries include Certified Public Accountant, Chartered Professional Accountant, Certified Management Accountant, Certified Practising Accountant and members of the Institute of Public Accountants, Certified Public Practising Accountant; the Institute of Chartered Accountants of Scotland received its Royal Charter in 1854 and is the world's first professional body of accountants. A Chartered Accountant must be a member of one of the following: the Institute of Chartered Accountants in England and Wales the Institute of Chartered Accountants of Scotland Chartered Accountants Ireland a recognised equivalent body from another Commonwealth country A Chartered Certified Accountant must be a member of the Association of Chartered Certified Accountants.
A Chartered Management Accountant must be a member of the Chartered Institute of Management Accountants. A Chartered Public Finance Accountant must be a member of the Chartered Institute of Public Finance and Accountancy. An International Accountant is a member of the Association of International Accountants. An Incorporated Financial Accountant is a member of the Institute of Financial Accountants. A Certified Public Accountant may be a member of the Association of Certified Public Accountants or its equivalent in another country, is designated as such after passing the Uniform Certified Public Accountant Examination. A Public Accountant may be a member of the Institute of Public Accountants. Registered Qualified Accountant may be a member of Accountants Institute, based in SloveniaExcepting the Association of Certified Public Accountants, each of the above bodies admits members only after passing examinations and undergoing a period of relevant work experience. Once admitted, members are expected to comply with ethical guidelines and gain appropriate professional experience.
Chartered, Chartered Certified, Chartered Public Finance, International Accountants engaging in practice must gain a "practising certificate" by meeting further requirements such as purchasing adequate insurance and undergoing inspections. The ICAEW, ICAS, ICAI, ACCA and AAPA are five Recognised Supervisory Bodies in the UK. A member of one of them may become a Statutory Auditor in accordance with the Companies Act, providing they can demonstrate the necessary professional ability in that area and submit to regular inspection, it is illegal for any individual or firm, not a Statutory Auditor to perform a company audit. The ICAEW, ICAS, ICAI, ACCA, AIA and CIPFA are six recognised qualifying bodies statutory in the UK. A member of one of them may become a Statutory Auditor in accordance with the Companies Act, providing they are a member of one of the five Recognised Supervisory Bodies RSB mentioned above. All six RQBs are listed under EU mutual recognition directives to practise in 27 EU member states and individually entered into agreement with the Hong Kong Institute of Certified Public Accountants.
Further restrictions apply to accountants. In addition to the bodies above, technical qualifications are offered by the Association of Accounting Technicians, ACCA and AIA, which are called AAT Technician, CAT and IAT. In Australia, there are three recognised local professional accounting bodies which all enjoy the same recognition and can be considered as "qualified accountant": the Institute of Public Accountants, CPA Australia and the Chartered Accountants Australia and New Zealand
Financial statements are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form, easy to understand, they include four basic financial statements accompanied by a management discussion and analysis: A balance sheet or statement of financial position, reports on a company's assets and owners equity at a given point in time. An income statement—or profit and loss report, or statement of comprehensive income, or statement of revenue & expense—reports on a company's income and profits over a stated period of time. A profit and loss statement provides information on the operation of the enterprise; these include the various expenses incurred during the stated period. A statement of changes in equity or equity statement, or statement of retained earnings, reports on the changes in equity of the company over a stated period of time. A cash flow statement reports on a company's cash flow activities its operating and financing activities over a stated period of time.
For large corporations, these statements may be complex and may include an extensive set of footnotes to the financial statements and management discussion and analysis. The notes describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statements are considered an integral part of the financial statements. "The objective of financial statements is to provide information about the financial position and changes in financial position of an enterprise, useful to a wide range of users in making economic decisions." Financial statements should be understandable, relevant and comparable. Reported assets, equity and expenses are directly related to an organization's financial position. Financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently." Financial statements may be used by users for different purposes: Owners and managers require financial statements to make important business decisions that affect its continued operations.
Financial analysis is performed on these statements to provide management with a more detailed understanding of the figures. These statements are used as part of management's annual report to the stockholders. Employees need these reports in making collective bargaining agreements with the management, in the case of labor unions or for individuals in discussing their compensation and rankings. Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analyses are used by investors and are prepared by professionals, thus providing them with the basis for making investment decisions. Financial institutions use them to decide whether to grant a company with fresh working capital or extend debt securities to finance expansion and other significant expenditures. Consolidated financial statements are defined as "Financial statements of a group in which the assets, equity, income and cash flows of the parent and its subsidiaries are presented as those of a single economic entity", according to International Accounting Standard 27 "Consolidated and separate financial statements", International Financial Reporting Standard 10 "Consolidated financial statements".
The rules for the recording and presentation of government financial statements may be different from those required for business and for non-profit organizations. They may use either of two accounting methods: accrual accounting, or cost accounting, or a combination of the two. A complete set of chart of accounts is used, different from the chart of a profit-oriented business. Personal financial statements may be required from persons applying for a personal loan or financial aid. A personal financial statement consists of a single form for reporting held assets and liabilities, or personal sources of income and expenses, or both; the form to be filled out is determined by the organization supplying the aid. Although laws differ from country to country, an audit of the financial statements of a public company is required for investment and tax purposes; these are performed by independent accountants or auditing firms. Results of the audit are summarized in an audit report that either provide an unqualified opinion on the financial statements or qualifications as to its fairness and accuracy.
The audit opinion on the financial statements is included in the annual report. There has been much legal debate over. Since audit reports tend to be addressed to the current shareholders, it is thought that they owe a legal duty of care to them, but this may not be the case as determined by common law precedent. In Canada, auditors are liable only to investors using a prospectus to buy shares in the primary market. In the United Kingdom, they have been held liable to potential investors when the auditor was aware of the potential investor and how they would use the information in the financial statements. Nowadays auditors tend to include in their report liability restrict