Private Trust Fund Accounting Basics
Private trust fund accounting is used to segregate resources for a specific use. The basic accounting objectives of trust fund accounting are to provide an accounting of resources in a manner that is trustworthy, compliant with current regulations and timely. While the mechanics of this type of accounting are similar to general accounting, some additional care needs to be taken in certain areas.
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Stewardship
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Beyond the basics of accurate accounting, private trust fund accounting has an element of stewardship. The accountant must be able to show the funds were as per instructions, through reporting and documentation. The financial data should be clear and mirror the trust objectives. For example, a nonprofit trust set up to invest and support funds associated with supporting higher education for adults would want to highlight scholarships awarded, since scholarships are indicative of meeting the trust goal of supporting higher education goals.
Management
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Often trust funds are funded by a generous beginning cash balance. An important part of trust accounting is to manage this cash efficiently. This is done by investing the resources in a manner that matches the cash needs of the fund. For example, if the fund is set up to fund the long-term purchase of a building, investments with long-term returns may better match the needs of the fund rather than a short-term, low interest savings account.
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Forecasts
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Part of the management of a trust fund is forecasting cash needs and expenditures of the trust, in order to timely meet the needs of the fund. Good forecasting is dependent on careful, realistic goal setting. Factor in the costs associated with managing the fund and allowing for fluctuations in market trends. Be forthcoming with management regarding concerns and potential shortfalls in meeting the trust fund's goals.
Governing
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Trust fund accounting is governed by the Federal Accounting Standards Advisory Board (FASB) and Generally Accepted Accounting Principles (GAAP). Failure to familiarize yourself with the rules set forth by FASB and GAAP, as well as federal and state regulations, can lead not only to questionable accounting practices but to legal implications that can lead to failure of the trust. Private trust fund accounting need not be complex, but it does need to be accurate and compliant.
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