What is fund accounting? (Not one pool — many buckets)

The short answer

Fund accounting means your organization's money is divided into separate buckets — not one big pile.

Each bucket is a fund. Every dollar belongs to a fund. Every transaction gets recorded against a fund. This matters because not all of your money is yours to spend however you want — and fund accounting makes that crystal clear.

Why nonprofits can't just use a checking account balance

Here's the situation most volunteer treasurers inherit: one checking account, one running balance, and a vague sense that some of that money is "for" something specific.

Maybe your organization received a grant to buy new equipment. Maybe someone donated specifically to your scholarship fund. Maybe you've been setting aside money for a capital project. It's all sitting in the same bank account — but it's not all the same money.

If you spend the scholarship money on office supplies because the balance "looked fine," you've got a problem. Not just with your donors — potentially with the IRS.

Fund accounting solves this by keeping the buckets separate, even when the bank account isn't.

A real example

Say your organization has three funds:

Your bank account shows $6,500. But only $4,200 is available for general expenses. The rest is spoken for.

Without fund accounting, you'd never know that just by looking at your balance. With GoodBooks, every transaction is tagged to a fund, and your reports show each bucket separately.

Restricted vs. unrestricted funds

Unrestricted funds — the money your organization can use for anything. Day-to-day bills, supplies, whatever you need.

Restricted funds — money given for a specific purpose. A donor who writes "for the building fund" on their check has restricted that money. You can't legally use it for something else without their permission.

GoodBooks tracks both. When a restricted fund gets spent for its intended purpose, that's called a release from restriction — GoodBooks handles that accounting for you automatically.

Not sure whether a donation is restricted? Check the donor's intent. If they wrote it on the check, said it in an email, or it was part of a specific campaign — it's probably restricted. When in doubt, treat it as restricted.

How GoodBooks handles funds

In GoodBooks, every fund is its own set of books. When you record a transaction, you pick which fund it belongs to. Your reports — like the Statement of Activities — can show you the full picture or drill down fund by fund.

You don't have to be an accountant to use this. GoodBooks is built for the person who volunteered to be treasurer and just wants to do it right.

Frequently asked questions

Do I have to use multiple funds? No. If your organization is simple and everything is unrestricted, you can run everything through a single general operating fund. Most small nonprofits start that way and add funds as needed.

Does each fund need its own bank account? No. One bank account is fine. GoodBooks tracks the funds in software — your bank doesn't need to know.

What if someone donates to a fund that doesn't exist yet? Create the fund in GoodBooks first, then record the donation. It takes about 30 seconds.

Related articles

• Setting up your first fund
• Restricted vs. unrestricted funds explained
• Release from restriction: what it is and when to use it
• Understanding account types in GoodBooks