What is a Fund Balance?

A fund balance is the net worth of a fund at any given point in time, found by calculating the assets and subtracting the liabilities. This can be particularly important in fund accounting, an approach where an organization creates a fund for a designated purpose to make the use of monies transparent and comply with legal mandates. Government agencies and academic institutions both do this for activities like paying for scholarships and public works projects.

Assets in a fund can include deposits as well as existing holdings. Liabilities involve expenses and withdrawals. In fund accounting, accountants should be able to show how money enters and leaves the fund, providing documentation to show how it was used. In a simple example, a university may have a fund for student events. At the beginning of the semester, student organizations pay into the fund to charge it up, and a series of disbursements are made as the semester progresses to fund activities, paying for things like speakers, transportation, food, and so forth.

In some forms of fund accounting, the end fund balance should be zero. This shows that the fund paid for itself and that all disbursements were related to the fund. If funds are left over, this indicates excessive payments into the fund, or a failure to completely disburse everything. If the fund has to borrow money, not enough funds are going into it, or it is not being used appropriately. A yearly scholarship fund, for example, should end with a net balance of zero.

Calculating fund balance is usually relatively easy to do. It is necessary to have access to the books to see assets and liabilities that may not have been recorded yet. For example, a fund could contain investments due for a dividend payout, and this would increase the fund balance. Likewise, there could be outstanding checks drawn on the fund that haven't cleared yet. In addition to adding assets and liabilities, it is also possible to audit the movement of funds, checking for issues like unauthorized disbursements.

In the case of public organizations, public disclosures about funds must be made available. Anyone can review the books and accounting information and can request a current fund balance and statement of account. This facilitates transparency, making organizations aware that members of the public will be able to see any questionable activity. If fund activity includes legal violations like not maintaining a required minimum balance, interested parties can bring suit to force the organization into regulatory compliance.