Which statement about fund accounting for not-for-profit organizations is true?

• A. Fund accounting can provide a good mechanism for facilitating reporting to donors.
• B. Fund accounting is not useful for donor reporting.
• C. Fund accounting is primarily used to determine tax liabilities.
• D. Fund accounting eliminates the need to track restricted funds.

Answer: (A)

Fund accounting for not-for-profit organizations is about separating resources into funds to reflect donor-imposed restrictions and other constraints. This structure makes accountability clear: each fund shows what is restricted for which purpose and how expenditures against those restrictions are tracked, which is exactly what donors want when they review reports.

That’s why the statement about donor reporting being facilitated by fund accounting is the best choice. It aligns with why these organizations use funds—so they can demonstrate to donors that gifts are being used as intended and with proper stewardship.

The other ideas don’t fit as well. Tax liabilities are not the primary focus of fund accounting, which centers on showing how resources are restricted and spent. And fund accounting does not remove the need to track restricted funds; it exists specifically to track and report on those restrictions.