An accumulated fund is a savings account for nonprofit organizations, allowing them to store excess funds and earn interest. It can be used to cover future expenses or support operations during revenue shortfalls. Maintaining an accumulated fund is important for financial stability.
An accumulated fund is a type of account that serves as a repository for funds that nonprofit organizations raise over time, far exceeding the money needed to cover operating and other expenses. Considered a form of equity fund, groups such as charities, associations, and private clubs will place these surplus accounts into some type of interest-bearing account, allowing that organization’s reserves of wealth to gradually grow. In some cases, portions of the accumulated fund are designated for specific future expenses, while additional percentages or actual amounts of the fund are available to support the overall operation in the event of revenue shortfalls.
The balance in an accumulated fund is increased by excess funds received by the nonprofit organization that are not immediately needed for general operations or to finance any specific project. Typically, funds of this type are placed in some type of account that allows easy access to the money should it be needed to meet an emerging need. Most organizations will opt for a savings account that is set up with little or no penalty for withdrawing funds, or some other type of savings arrangement that allows interest to be earned on the accumulated fund balance. With this approach, nonprofits can build savings that help secure the organization’s future by providing access to money that can be used to manage day-to-day operating expenses in the event that donations to the charity or association fall below the minimum necessary to cover those expenses.
Creating some type of accumulated fund is not difficult. The fund may be nothing more than a savings account or even an interest-bearing checking account opened at a local bank in the organization’s name. For accounting purposes, the fund can be treated like any type of bank account, allowing deposits and withdrawals to be accounted for using generally accepted accounting principles. As with any type of fund or financial account, it is important to record activities as they occur, so the balance found within the accumulated fund is always current.
Maintaining an accumulated fund is important to the financial health of any type of nonprofit organization. By keeping the surplus on hand and easily accessible, executive directors or other authorized persons with access to the fund can draw on the balance when and as necessary, subject to compliance with any provisions within the bylaws and other fundamental documents associated with the organization. This is especially important for nonprofit organizations that tend to experience seasonal ups and downs in giving, as the ability to save surplus received during a season and allow those funds to generate interest income that can be used during a Slow season means that essential operations and the services offered by the organization do not have to be reduced.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
