Many healthcare organizations like hospitals
Many healthcare organizations like hospitals, clinics, or nursing facilities are actually non-profits organization, activities of which in providing medical services, educational and preventive care services are mission-driven. Fund accounting refers to the main difference between for-profit and non-profit accounting. It separates all financial accounts into individualized accounting entity which records its own assets, liabilities, revenues and expense accounts. The basic idea behind fund accounting is the transparency of the use of assets that are donated, ensuring that the donations purpose and mission are fulfilled and supported. Therefore, as opposed to for-profit healthcare organizations, non-profits organizations and government agencies fund accounting focus on accountability, and how efficiently the financial resources are distributed to meet the purpose fund accounting is designed for. By using fund accounting, the availability of funds designated for each project is better monitored and managed Therefore, non-profit healthcare organization identifies for which purposes the assets are spent, and where the organization should focus for fundraising activities. By doing so, transparent financial statements are generated for the donors to prove that revenue is used in accordance to their wishes. Through fund accounting the non-profit organization can better track the progress and highlights areas of strengths and weakness since fund accounting represents an entity with its own separate set of financial records.
Internal rules and legal standards are both crucial when it comes to non-profit fund accounting, as they impact the organization accounting practice. Many non-profits operations are regulated under standards of Financial Accounting Standards Board (FASB). Under the new rules that went to effect on December 2017, the Statement of Financial Position will only have two classes of “Net Assets”: net assets with donor restrictions, and net assets without donor restrictions (Scarano, Joseph 2017).