The short answer
Fund accounting means keeping money apart by the restrictions donors place on it. In Business Central that separation is carried by dimensions rather than by thousands of account combinations, and GrantFlow 365 records the restriction type of each grant and moves funds from deferred to recognised as the rules allow.
Commercial accounting measures performance on a single general fund. Non-profits and international NGOs follow fund accounting principles under standards such as IFRS or US GAAP (FASB ASC 958), which segregate assets by donor-imposed restriction.
Unrestricted funds
General funds available for the organisation's priorities.
Temporarily restricted funds
Donor funds designated for a programme, region or period.
Permanently restricted funds
Principal that must stay intact, where only the income can be spent.
It explains fund accounting in Dynamics 365, restricted fund tracking in Business Central and what to look for in non profit fund accounting software.
The pitfall: chart of accounts bloat
In older systems, restrictions were handled by building an account segment for every fund, donor, department and grant combination.
60100 - 02 - 104 - 05 - 88201: one account code that multiplies into tens of thousands of combinations as grants are added.
That bloat slows the system, raises the error rate at journal entry and makes reporting brittle.
The modern approach: dimension-based fund accounting
Business Central keeps the natural account code separate from the analytical attributes, using global and shortcut dimensions.
A lean chart of accounts
The account says what the money was spent on.
- Program travel, salaries, supplies and so on
- One account serves every grant
Dimensions carry the context
The dimensions say whose money and why.
- Fund class, such as restricted or unrestricted
- Donor
- Grant
- Activity
Fund accounting features in GrantFlow 365
1. Restriction recorded on the grant
Each award carries its restriction type.
- Unrestricted, restricted, conditional, exchange and contribution treatments
- Donor receipts and the revenue recognition process move funds from deferred to recognised when the rules allow
- Retention and withholding tax releases are handled as controlled postings
2. Splitting a cost across grants
Co-funded programmes share costs.
- Award lines carry allocation percentages to Business Central projects and tasks
- Funding components split a grant by tranche or workstream, with a currency
- The split is agreed in design, so finance keys the invoice once
3. Statements from the ledger
Finance reports without exporting to spreadsheets.
- Business Central financial reports, configured with your partner, for position, activities and functional expenses
- Grant ledger entries and Excel exports for Budget vs Actual and donor statements
A co-funded cost, worked through
An illustration of one rent invoice shared across two grants and the organisation's own funds.
| Expense | Total | Fund | Share | Applied to |
|---|---|---|---|---|
| Field office rent | $10,000 | Restricted | 50% | Health grant |
| Field office rent | $10,000 | Restricted | 30% | Education grant |
| Field office rent | $10,000 | Unrestricted | 20% | General operations |
The percentages above are an example. How allocation is applied to your grants is agreed in design, and the financial statement layouts are configured to your accounting framework.
Legacy segments against dimensions
| Capability | Segmented chart of accounts | Business Central with GrantFlow 365 |
|---|---|---|
| Chart of accounts | Many redundant account combinations | A lean chart, with detail in dimensions |
| Setting up a new grant | New segment combinations to create | A grant and its dimension values |
| Entry accuracy | Easy to pick the wrong combination | Dimension rules and validation on the posting |
| Audit preparation | Spreadsheet reconciliations | Drill-down from the ledger to the source documents |
To see fund accounting on your own grants, book a GrantFlow 365 demo or read the GrantFlow 365 product page.
Keep reading
Restricted vs unrestricted funds
Deferred income, recognition and closeout. Read the guide
Multi-currency grant accounting
Revaluation, partner advances and donor currency rules. Read the guide
Business Central for NGOs
The core guide to fund accounting, grants and multi-currency control. Read the guide
Frequently asked questions
Can Business Central do fund accounting without a bloated chart of accounts?
Yes. Dimensions carry fund, donor, grant and activity on each posting, so one lean chart of accounts serves every grant.
How does GrantFlow 365 track restricted and unrestricted funds?
Each grant carries a restriction type, and donor receipts and revenue recognition move funds from deferred to recognised when the rules allow.
Can one cost be split across several grants?
Yes. Award lines carry allocation percentages to projects and tasks, and grants can be split by funding component. The method is agreed in design.