What is the main purpose of fund accounting?

The main purpose of fund accounting is to segregate money for specific purposes. This accounting method is particularly important for governmental and nonprofit organizations because it helps to ensure that resources are allocated to their intended uses. By creating separate funds for different functions or projects, organizations are able to track expenditures and revenues with clarity and accountability, which is vital for maintaining compliance with regulations and for providing transparency to stakeholders.

Fund accounting allows entities to manage multiple funding sources more effectively, making it easier to see how funds are being utilized, ensuring restrictions on the use of funds are honored, and allowing for better budgeting and financial planning. Therefore, selecting the option that specifically states the segregation of funds reflects the essence and main objective of fund accounting.