Restricted vs. unrestricted funds
Nonprofits don't get to treat all their cash as one pile. Money usually arrives with strings:
- Restricted funds are designated by a donor or grantmaker for a specific purpose or time — a grant for a youth program, a gift earmarked for a building. You're legally and ethically bound to spend it only on that.
- Unrestricted funds can be used for any mission-aligned purpose, including overhead and operations.
Fund accounting keeps these in separate 'funds' so you always know what you're free to spend and what's spoken for, even though it may all sit in one bank balance.
How it shows up in the books
Because the goal is accountability, not profit, nonprofits report differently from businesses. Instead of a Profit & Loss statement, you produce a Statement of Activities — revenue and expenses broken out by fund and by restriction — so a board, auditor, or grantmaker can see that restricted dollars were spent on their intended purpose.
The hard part in practice is keeping the funds straight as money actually moves: a deposit hits the bank, but the bank has no idea which fund it belongs to. That gap is where the spreadsheets and the manual reconciliation come from.
Tracking funds inside the account
The usual setup is a bank account that knows nothing about funds, plus accounting software (or a spreadsheet) where a treasurer re-tags every transaction to a fund and reconciles the two every month.
Holdings closes that gap: fund tracking lives inside the account. When a grant payment lands, it's recorded to the right fund as it arrives — the deposit and the fund entry are the same event. There's no spreadsheet bridge and no month-end reconciliation between the bank and the fund ledger, because they were never separate. Nonprofit fund accounting and statements are part of the $25/mo plan.
25 write-offs most freelancers miss
Grab the free tax deduction cheat sheet — deductions, estimated savings, and records to keep.
Free PDF — no spam, unsubscribe anytime.
Frequently asked questions
Do all nonprofits have to use fund accounting?
If you receive restricted gifts or grants, you effectively need it to stay compliant and pass an audit — you must be able to show restricted money was used as designated. Very small all-unrestricted nonprofits can get by with simpler tracking, but most adopt fund accounting early.
Is fund accounting the same as regular business accounting?
It uses the same double-entry foundation but reorients it around purpose and accountability instead of profit. Funds replace the single pooled balance, and reports like the Statement of Activities replace the P&L.
Does Holdings do fund accounting?
Yes — fund accounting is native to the Holdings account on the $25/mo plan. Each restricted and unrestricted fund is tracked inside the account as money moves, so there's no separate spreadsheet to reconcile.