Question

Answer the question.
Explain with illustration the concept of 'Fund Based Accounting'?

Answer 1

The concept of Fund Based Accounting refers to the accounting whereby receipts and incomes relating to a particular fund is credited to that particular fund and payments and expenses are debited to it. Such funds are created for specific purposes such as Building Fund, Library Fund, Sports Fund and Prize Fund etc.

Example: The Sports Fund has a balance of Rs. $1,00,000$ which stands invested as fixed deposit in a bank earning $8\%$ interest. The expenses is incurred towards prizes are Rs. $7,000$. In the accounts, it is reflected as follows:

	Rs.
Sports Fund	$1,00,000$
Add: Interest earned on deposit	$8,000$
	$1,08,000$
Less: Expenses for the year	$7,000$
Show in the liabilities side of balance sheet	$1,01,000$