What Is an Accumulated Fund?
An accumulated fund is a type of account that serves as the repository for funds that are collected over time by non-profit organizations and are above and beyond the money needed to cover operational and other expenditures. Considered a form of capital fund, groups such as charities, associations, and private clubs will place these surplus accounts into some type of interest-bearing account, making it possible to gradually increase the wealth reserves of that organization. In some cases, portions of the accumulated fund are designated for specific future expenditures, while additional percentages or actual amounts of the fund are made available to support the general operation in the event of a shortfall of income.
The balance in an accumulated fund is grown by surplus funds received by the non-profit that are not immediately needed for general operations or funding some specific project. Typically, funds of this type are placed into some sort of account that allows easy access to the money in the event it is needed to meet an emerging need. Most organizations will opt for a savings account that is configured with little to no penalties for withdrawing funds, or some other sort of savings arrangement that makes it possible to earn interest on the balance of the accumulated fund. Using this approach, non-profits can build nest eggs that help to ensure the future of the organization by providing access to money that can be drawn upon to manage day to day operational expenses in the event that donations to the charity or association should fall below the minimum needed to cover those expenses.
Setting up some type of accumulated fund is not difficult. The fund may 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, making it possible to post deposits and withdrawals using generally accepted accounting principles. As with any type of financial fund or account, it is important to record activities as they occur, so the balance found within the accumulated fund is always current.
Maintaining an accumulated fund is important to the financial health of any type of non-profit organization. By having the surplus on hand and readily accessible, executive directors or others authorized with access to the fund can draw on the balance when and as needed, subject to compliance with any provisions within the bylaws and other foundational documents associated with the organization. This is especially important for non-profits that tend to experience seasonal upturns and downturns in donations, since the ability to save the surplus received during one season and allow those funds to generate interest income that can be used during a slow season means that essential operations and services offered by the organization do not have to be curtailed.
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