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An accrual fund is a type of account that serves as a repository for funds that nonprofits collect over time that are on top of the money needed to cover operating and other expenses. Considered a form of capital fund, groups such as charities, associations, and private clubs will place these surplus accounts in some type of interest-bearing account, allowing for the gradual increase of that organization’s capital reserves. In some cases, portions of the accumulated fund are designated for specific future expenses, while additional percentages or actual amounts of the fund are made available to support the general operation in the event of a lack of income.
The balance of an accumulated fund is increased by excess funds received by the nonprofit organization that are not immediately needed for general operations or the funding of a specific project. Funds of this type are usually placed in some type of account that allows easy access to cash 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 withdrawal penalty, or some other type of savings scheme that allows you to earn interest on your accumulated fund balance. With this approach, nonprofits can build savings that help secure the organization’s future by providing access to cash that can be used to manage day-to-day operating expenses should donations to the charity or association drop. below the minimum necessary to cover these expenses.
Establishing some kind of accumulated fund is not difficult. The fund can 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 made in accordance with generally accepted accounting principles. As with any type of fund or financial account, it is important to record activities as they occur so that the balance in the accumulated fund is always up to date.
Maintaining an accumulated fund is important to the financial health of any type of nonprofit organization. With the surplus in hand and easily accessible, CEOs or other authorized persons with access to the fund can withdraw the balance when and as needed, subject to compliance with the provisions of the bylaws and other key documents associated with the organization. This is especially important for nonprofit organizations that tend to experience seasonal increases and decreases in donations, as the ability to save surpluses received during a season and allow those funds to generate interest income that can be used during a season The slow season means that the essential operations and services offered by the organization do not need to be restricted.