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Fund accounting is a system of accounting used by state and local governments, as well as by nonprofit organizations, to keep track of separate funds. Each fund is considered a separate entity and therefore must be accounted for with a separate set of self-balancing accounts that record the expenses and revenues, assets, and liabilities of that fund. Funds must be tracked and balanced as separate accounts because each one has a different set of limitations and regulations dictating how it can be used. To help with this complex accounting, there is fund accounting software tailored to the specific needs of nonprofit and government agencies. This is different from the standard commercial accounting software used by for-profit businesses.
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