--- title: Segregation of Funds and Restricted vs. Unrestricted Funds description: Fund accounting helps organizations track & manage funds wisely. Click here to learn about segregation of funds & restricted vs. unrestricted funds. --- [![Harris_Local_Gov_Logo_FullColor_1000px](https://blog.harrislocalgov.com/hs-fs/hubfs/Logos/HLG/Harris_Local_Gov_Logo_FullColor_1000px.png?width=179&height=52&name=Harris_Local_Gov_Logo_FullColor_1000px.png "Harris_Local_Gov_Logo_FullColor_1000px")](http://smartfusiongov.com) - [Solutions](https://learn.harrislocalgov.com/solutions) - Solutions - [SmartFusion](https://hlgsmartfusion.harrislocalgov.com) - [Print & Mail](https://print-mail.harrislocalgov.com) - [Module Add-ons](https://learn.harrislocalgov.com/add-ons) - [Resource Hub](https://learn.harrislocalgov.com) - White Papers - [White Papers](https://smartfusiongov.com/resources) - Video Library - [On-Demand Demos](https://smartfusiongov.com/resources-folder/request-access-to-videos) - Tips & Tricks - [Tips & Tricks](https://learn.harrislocalgov.com/microsoft-outlook-tips-tricks) - About - About Harris Local Government ![](https://f.hubspotusercontent00.net/hub/74005/hubfs/spark/stock/placeholder-megamenu.png?width=250&name=placeholder-megamenu.png) **About Harris Local Government** Harris Local Government is a leading provider of software solutions for public sector organizations. For over 40 years, we have helped our clients improve their financial management, human resources, regulatory compliance, and billing processes. Our portfolio of innovative solutions is designed specifically to meet the needs of small and mid-sized municipalities, counties, utility districts, and park districts. We are committed to providing our clients with the highest level of service and support, and we offer a "Software for Life" philosophy that guarantees our products will be supported for as long as you need them. We are also committed to fostering inclusion and diversity at all levels of our company. We believe that our differences make us stronger, and we are committed to creating a workplace where everyone feels heard, safe, valued, and empowered to succeed. - [Solutions](https://learn.harrislocalgov.com/solutions) - Solutions - [SmartFusion](https://hlgsmartfusion.harrislocalgov.com) - [Print & Mail](https://print-mail.harrislocalgov.com) - [Module Add-ons](https://learn.harrislocalgov.com/add-ons) - [Resource Hub](https://learn.harrislocalgov.com) - White Papers - [White Papers](https://smartfusiongov.com/resources) - Video Library - [On-Demand Demos](https://smartfusiongov.com/resources-folder/request-access-to-videos) - Tips & Tricks - [Tips & Tricks](https://learn.harrislocalgov.com/microsoft-outlook-tips-tricks) - About - About Harris Local Government ![](https://f.hubspotusercontent00.net/hub/74005/hubfs/spark/stock/placeholder-megamenu.png?width=250&name=placeholder-megamenu.png) **About Harris Local Government** Harris Local Government is a leading provider of software solutions for public sector organizations. For over 40 years, we have helped our clients improve their financial management, human resources, regulatory compliance, and billing processes. Our portfolio of innovative solutions is designed specifically to meet the needs of small and mid-sized municipalities, counties, utility districts, and park districts. We are committed to providing our clients with the highest level of service and support, and we offer a "Software for Life" philosophy that guarantees our products will be supported for as long as you need them. We are also committed to fostering inclusion and diversity at all levels of our company. We believe that our differences make us stronger, and we are committed to creating a workplace where everyone feels heard, safe, valued, and empowered to succeed. Search Search - [CONTACT US](https://share.hsforms.com/1RMLa9Ma_ThmRswRd8gX2Qwdrzo6) - [CONTACT US](https://share.hsforms.com/1RMLa9Ma_ThmRswRd8gX2Qwdrzo6) Search Search ![Fund accounting](https://blog.harrislocalgov.com/hubfs/Fund%20accounting.png) [Fund Accounting](https://blog.harrislocalgov.com/tag/fund-accounting) # Segregation of Funds and Restricted vs. Unrestricted Funds Share - [mailto:?&subject=Segregation%20of%20Funds%20and%20Restricted%20vs.%20Unrestricted%20Funds&body=Segregation%20of%20Funds%20and%20Restricted%20vs.%20Unrestricted%20Funds%0A(https%3A%2F%2Fblog.harrislocalgov.com%2Fsegregation-of-funds-and-restricted-vs.-unrestricted-funds)](mailto:?&subject=Segregation%20of%20Funds%20and%20Restricted%20vs.%20Unrestricted%20Funds&body=Segregation%20of%20Funds%20and%20Restricted%20vs.%20Unrestricted%20Funds%0A(https%3A%2F%2Fblog.harrislocalgov.com%2Fsegregation-of-funds-and-restricted-vs.-unrestricted-funds)) - - - Fund accounting is an important tool for governments, non-profit organizations, and other entities that receive and manage funds from various sources. It helps to ensure that funds are used for their intended purposes and that there is transparency and accountability in the management of financial resources. One of the key principles of fund accounting is the segregation of funds. This means that funds are tracked and managed separately, based on their source and purpose. This helps to prevent overspending in any one area and to ensure that restricted funds are not used for unintended purposes. Another key principle of fund accounting is the distinction between restricted and unrestricted funds. Restricted funds are those that have been donated or allocated for a specific purpose. Unrestricted funds can be used for any purpose that is deemed necessary by the organization. The segregation of funds and the distinction between restricted and unrestricted funds are two important principles that help to ensure the accountability and transparency of fund accounting. By following these principles, organizations can help to ensure that their funds are used wisely and for the benefit of the community. This article will explore these two principles in more detail and discuss how they can be applied to fund accounting. We will also discuss the benefits of using fund accounting and how it can help organizations to achieve their financial goals. --- Fund accounting is an accounting system that is used by government agencies, non-profit organizations, and other entities that receive and manage funds from various sources. The purpose of fund accounting is to track financial resources based on their requirements and restrictions. As the goals of the above mentioned entities are not profit based, their funds must be reinvested back into the organization and community for different operational costs and programs. Due to this, fund accounting focuses on accountability and transparency. There are seven principles that fund accounting uses to uphold these standards: - Segregation of funds - Restricted vs. unrestricted funds - Accrual accounting - Budgeting - Financial reporting - Audit requirements - Compliance The first two principles focus mainly on where funds are being placed. The segregation of funds guarantees that funds are used for their intended purposes, while tracking restricted vs. unrestricted funds ensures that restricted funds are not used for unintended purposes. Let’s dive deeper into these two key principles. There are many organizations within a community that the government must provide support for. Segregating funds plays an important role in the budgeting to be able to do so. Governments utilize the segregation of funds to essentially view each fund as its own entity with their own set of books. For local governments, this typically means separate funds for the police department, school districts, and medical facilities, for example. Segregating these funds helps prevent overspending in any one area. To further ensure that funds are allocated properly, fund accounting distinguishes between restricted funds and unrestricted funds. ![Local Government](https://blog.harrislocalgov.com/hs-fs/hubfs/Local%20Government.png?width=610&height=511&name=Local%20Government.png)   Restricted funds are either non-spendable or required to be used for a set purpose. One purpose could be finances set for highway funds, for example. These restrictions are typically put in place by legislation or external resources. Unrestricted funds can be used for purposes an organization views have the greatest needs. Often times, this fund will go towards organizational costs, like salaries or utilities.  Fund accounting systems allow governments to maintain a tight control over their finances, with a distinct focus on their remaining resources. Unrestricted fund balances are a good way to judge this, as they are generally viewed as a high-level indicator of a government’s financial standing. Federal, state, and local governments use fund accounting versus general accounting systems because it helps officials easily divide finances by funds, departments, and projects. While general accounting works for profit-based businesses, it is not designed to accurately report many different revenue sources and obligations. Fund accounting segregates funds because it helps the bookkeeping and audit process easier to manage. The distinction between restricted and unrestricted funds is necessary, as there are laws in place that ensure that governments are using their money to benefit the community they are serving. These two key principles are extremely important in governments having financial transparency and accountability. --- ## About Harris Local Government For 40+ years, [Harris Local Government](https://www.harrislocalgov.com/products/smartfusion/) has empowered public sector leaders with specialized software for fund accounting, HR, regulation, and billing. Serving 5,500+ municipalities, counties, and more across the US, we reduce financial risk and drive efficiencies. A division of Harris Computer Corp and Constellation Software, we serve 125,000+ customers globally. ![Admin](https://blog.harrislocalgov.com/hs-fs/hubfs/Untitled%20design%20(13).png?width=70&name=Untitled%20design%20(13).png) ### Written By: Admin SmartFusion, a Harris Computer software: Where budgets meet brilliance, and communities thrive. We're not just about software; We believe in continuous improvement and inspiring leaders to build citizen trust. As part of Harris Computer, SmartFusion® is our integrated suite designed to simplify your accounting, reporting, billing, and HR tasks. ## You May Also Like ### [![Segregation of Funds and Restricted vs. Unrestricted Funds](https://blog.harrislocalgov.com/hubfs/SmartFusion(1).png) *Jun 29, 2023 2:24:37 PM | Fund Accounting* Accrual Accounting](https://blog.harrislocalgov.com/accrual-accounting) ### [![Budgeting Unveiled Blog](https://blog.harrislocalgov.com/hubfs/Unveiled%20Budgeting.png) *Aug 22, 2023 11:56:47 AM | Fund Accounting* Budgeting Unveiled: Navigating the Maze of Fund Accounting](https://blog.harrislocalgov.com/budgeting-unveiled) ### [![Unveiling Challenges with Lazaro Elias](https://blog.harrislocalgov.com/hubfs/Unveiling%20Challenges%20with%20Lazaro%20Elias.png) *Apr 24, 2024 11:01:56 AM | Government Finances* Unveiling the Challenges: Local Government's Struggle with Inadequate Systems](https://blog.harrislocalgov.com/unveiling-the-challenges-local-governments-struggle-with-inadequate-systems) [White Papers](https://blog.harrislocalgov.com) [![SmartFusion - Primary Logo - Stacked](https://blog.harrislocalgov.com/hs-fs/hubfs/SmartFusion%20-%20Primary%20Logo%20-%20Full%20Color%20-%20Stacked-1.png?width=1596&height=913&name=SmartFusion%20-%20Primary%20Logo%20-%20Full%20Color%20-%20Stacked-1.png "SmartFusion - Primary Logo - Stacked")](http://smartfusiongov.com) - Resource Hub - [White Papers](https://blog.harrislocalgov.com) - [Video Library](https://learn.harrislocalgov.com/video-library) - [Events](https://learn.harrislocalgov.com/events) - [Tips & Tricks](https://learn.harrislocalgov.com/microsoft-outlook-tips-tricks) - Services - [SmartFusion](https://hlgsmartfusion.harrislocalgov.com) - [Harris Print & Mail](https://print-mail.harrislocalgov.com) - [Module Add-ons](https://learn.harrislocalgov.com/add-ons) - [Services](https://www.example.com) - [Lorem Ipsum Dolor](https://www.example.com) - [Sit Amet](https://www.example.com) - [Aliquam Tincidunt](https://www.example.com) - [Vestibulum Auctor](https://www.example.com) - [Services](https://www.example.com) - [Lorem Ipsum Dolor](https://www.example.com) - [Sit Amet](https://www.example.com) - [Aliquam Tincidunt](https://www.example.com) - [Vestibulum Auctor](https://www.example.com) 2017 East Main St., Easley, SC 29640 [tel:](tel:) © Harris Local Government. 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