Question

Explain what is meant by fund accounting. Discuss with examples how the fund accounting is used in the public sector.

Answer 1

Fund Accounting is the system of accounting which generally used by the non-profit organization where the major concern is not profitability, instead, it is proprietory of the funds. The Fund Accounting records the income and expense as well as appropriations of the total funds to different public interest projects.

As explained, public sector entities are formed only for the public interest - they collect various taxes and fines and spend the same for infrastructure development and public interest objects. It is important for various stakeholders and to establish the accountability that the public funds are used with prudence - fund accounting is the solution to record the flow of the funds and where all the funds have been used.

Examples can be federal funds and government funds.