Introduction to Fund Accounting
13th july 2015
Monday is here, O no, time for work. Set out as usual around 6 am and got to the office before 8 am. Went to my temporary desk and bowed my head to cool of. Then someone asked me to go and give someone something upstairs. On my way back,I met the hr lady. She asked if I had gotten my computer and I promptly replied that I had not. She went to my H.od to have words with me. My H.od told me later that it would be ready by the end of this week, and I would have some responsibilities on it. Then i remembered someone in my unit say that she would teach me her own aspect which was fund accounting. I was excited and when I went to ask her, she said I should come back in three hours time. So I was anxious and waiting. Finally it was time,and I went to meet her.
My ppa, Crusader Sterling Pensions manages various types of funds which represents a pool of money or assets. The main funds are the RSA (Retirement savings account) fund and the Retiree fund. They manage like 9 other funds which include gratuity’s or pension schemes for other companies. The RSA fund contains remittances of employees by their employers; it can be divided into remittance by employer and remittance by employee. In Nigeria, the employer is required by law to remit 10% at least of the basic salary of the employee, and deduct 8% of the basic salary of the employee from the gross pay. That is 18% in Total. The Employer can decide to bear it all like some big boy companies do, but the minimum would be 20% of the basic salary of the employee.
My PPA basically gathers the money together and invests them in securities like the Government Treasury bills, Government bonds, Private equity, and stocks to mention a few. They charge between 1.5% to 2% of the Asset Under Management as Admin fees. So on resuming, i immediately went to pester my senior colleague to explain the process of fund accounting to me, which she did, and she was thorough with it. She stared from the basics, she began with what a fund is. A fund is a fiscal and accounting entity with a self balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual balances, which are segregated for the purpose of carrying on specific activities in accordance with specific regulations, restrictions or limitations.
My company’s own is a fiduciary fund, a pension trust used to report resources that are required to be held in trust for the members and beneficiaries of defined benefit pension plans, defined contribution plans, other post employment benefit plans or other employee benefit plan.
A fund has its own General ledger, trial balance, income statement, statement of financial position. They are maintained in fund accounting each for the various types of fund they have. Funds segregate the monies of the entity according to legal or purpose restrictions. She thought me the principles surrounding fund accounting, that the general ledger consists of the cash book, and the different ledgers,and the basic principle still holds which is Dr: Assets and expenses and Credit: Income and Liabilities.
In the statement of financial position, the basic principle holds, Assets – liabilities= Net position. We debit an increase in asset accounts, which includes cash, accounts receivable, building and equipment and investments. Then we credit an increase in liabilities which includes account payable, deferred revenue, long term debt.
Baruch Englard., Schaum’s Outline of Intermediate Accounting II