What Type of Accounting Does Combining Fund Financial Statements Use?
Finance is very important as it acts as the command center to handle organizational revenue. Where there are several funds, the financial statements can be numerous and almost impossible to handle. This is why fund financial statements are combined with fixed assets on the balance sheet. To reduce voluminous financial report data, they condense the financial information to enable users to develop a clear understanding of the balance sheets.
In this article, you will understand how consolidation of fund financial statements works and how you can use it to support your organization’s economic management.
What is Combining Fund Financial Statements?
The combining of fund financial statements is a kind of financial report that imparts a consolidated picture of an institution’s financial position by including all sorts of funds in a single statement. This kind of financial reporting reduces the level of complexity of the financial information provided so that it can be easily understood and analyzed. Basically, the users of the financial statement gain the ability to make appropriate decisions about their organization’s future commitments and resources.
The main benefit of using combining fund financial statements is that they offer a consolidated picture of an organization’s financial status. By doing so, they enable decision-makers to view each of the individual funds separately and evaluate their performance and undertake an evaluation to see if there is a problem that has to be rectified. It also removes the complexity in the generation of financial reports in the manner and time needed to prepare and analyze them.
Combining of Fund Financial Statements
When it comes to the preparation of combining fund financial statements, there are basically five different steps to undertake, and all this with the goal of satisfying the needs of an organization.
Here are some common types:
Statement of Cash Flow: This statement shows the receipts and payments made from various funds of an organization. In its simplest form, a managerial account helps the decision makers to know how cash is being used and how it is being earned, an insight critical to understanding the health of an organization.
Balance Sheet: Balance sheet displays an organization’s strengths in terms of property and the weaknesses in terms of claims against the property at that particular point of time. The balance sheet is produced at the creation of every single fund, then combined and coordinated in a single statement that shows the financial status of the organization.
Statement of Activities: This statement outlines an organization’s revenues and expenses, and increases or decreases in value of assets limited to a particular period. For two or more fund financial statements, the statement of activities may be prepared for individual funds and then combined and presented in one statement which gives a broad view about the financial performance of the organization.
In carrying out the combining fund financial statements, organizations should develop statements which have material, useful, reliable, relevant, and understandable content.
How Combining Fund Financial Statements Works
The most relevant information needed in preparing combining fund financial statements involves the collection of the financial information of each of the individual funds. In this process, evaluating entails checking and interpreting financial papers which include balance sheets, transaction reports, and journal vouchers.
When you have the data you need, you can start with the construction of combining fund financial statements.
This process typically involves the following steps:
-Electively preparing individual statements of financial position for each of the funds
-Comparing and contrasting the said funds
-Preparing a single financial statement as a result of compiling the financial statements of several organizations
-Being able to interact with the data and find out any patterns or problems with the data
-Reporting of the consolidated financial statement so that decision-makers can review and then take necessary action
Some important records should be kept in the process, and computing should always use the most accurate and current information available. To create the combining fund financial statements, an organization should follow these steps and strictly follow the GAAP and GASB standard recommendations, thus making statements that will ideally reflect all financial situations of an organization.
Combined fund statements are essential to any organization that operates more than one fund. They reduce the complexity of the financial report process enabling you to have a general picture of the financial situation of the organizational entity. With the help of a single position statement, it is easier and more efficient for managers and other decision makers to evaluate their company’s financial resources and financial forecast.
However, producing combining fund financial statements can be a little bit of a complicated endeavor that involves understanding of the accounting profession and financial reporting, and some regulations that are set by some institutions such as GASB. The knowledge on the types of combining fund financial statements, how they operate, and how one could develop them, will assist in differentiating various funds, optimizing the use of organizational assets, and managing organizational monetary health.
Accordingly, combining fund financial statements are essential in the financial management of organizations which have various funds. They offer help to decision makers so they can review and contrast the positions of each of the funds, and consequently, make the right decisions in the future of that organization. To achieve this target, organizations must ensure compliance with GAAP and GASB standards/recommendations and the procedures highlighted in this article.
