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An accumulated fund is a type of account that serves as a repository for funds that are collected over time by non-profit organizations and are above and beyond the money needed to cover operating expenses and other expenses. Considered a form of capital fund, groups such as charities, associations, and private clubs will place these surplus accounts in some sort of interest-bearing account, enabling the gradual increase in that organization’s equity 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 overall operation in the event of a lack of income.
The balance in an accumulated fund is increased by excess funds received by the non-profit organization that are not immediately needed for general operations or funding for a specific project. Typically, funds of this type are 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 penalty for withdrawing funds, or some other type of savings scheme that allows you to earn interest on your accumulated fund balance. Using this approach, nonprofits can build nest eggs that help secure the organization’s future by providing access to cash that can be used to manage day-to-day operating expenses in the event of donations to the charity or association. fall below the minimum necessary to cover these expenses.
Establishing some sort 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 name of the organization. For accounting purposes, the fund can be treated like any type of bank account, enabling 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 found in the accumulated fund is always current.
Maintaining an accumulated fund is important to the financial health of any type of non-profit organization. With the surplus in hand and easily accessible, executive directors or others authorized with access to the fund can withdraw the balance when and as needed, subject to compliance with any provisions of the bylaws and other key documents associated with the organization. This is especially important for nonprofits that tend to experience seasonal rises and falls in donations, as the ability to save surplus received during a season and allow those funds to generate interest income that can be used during a season Slow season means that essential operations and services offered by the organization do not need to be restricted.