A surplus in the budget that a non-profit organization keeps.
How Accumulated Fund Works
Money in the accumulated fund is set aside in liquidity provision whenever there are budget deficits and when the organization requires additional assets. The net assets of the non-profit organizations are the value of the accumulated fund. There are accumulated funds known as capital accounts in non-profit organizations such as charities, civic clubs, and societies. Whenever there is a surplus in the budget and expenses are less than the revenue, money gets deposited in the accumulated fund.
Also, whenever a deficit in the budget and expenses are more significant than the revenue, money is withdrawn from the accumulated fund to make up the difference. Generally, an accumulated fund is known as accumulating money for a specific purpose.
The excess amount of money that a non-profit organization receives gets held as an accumulated fund. Anytime the expenses are less than revenue, and there is a surplus in the budget, there is growth in the accumulated funds. It is also necessary to note that the only time money gets withdrawn from the accumulated fund is to advance charity activities and the day-to-day operation of the non-profit organization. Any non-profit organization has been exempted from tax payment by the International Revenue Service (IRS).
Real-World Example of Accumulated Fund
Capricorn earns $210,000 from monetary gifts annually, and for a year, it brings in $199,000. At any time, you can calculate the accumulated fund's value by simply doing the valuation of the net assets of the company or organization (i.e., assets less liabilities).
To get the full $200,000 for the year, it needs to take $1,000 from the accumulated fund. The accumulated fund will get a withdrawal of $1,000, and it will remain with $209,000.
If on another year, the Capricorn company generates an amount of $160,000 and its monetary gift adds up to $99,000. The Capricorn will deposit the excess from their revenue which is $60,000, to the accumulated fund.
Significance of Accumulated Fund
Section 501(c). (3) of the tax code is the one that permits the non-profit organization to do its operations. For a business to be a non-profit organization and get exempted from paying taxes, it needs to avoid serving private interests. Such interests include shareholders, the creator's family, the creator, and other individuals. Therefore, there shouldn't be any organization's net earnings that are supposed to benefit an individual or shareholders.
All the money that a non-profit organization earns should solely be used to advance daily operations and charitable causes. Non-profit organizations are also not allowed to have a substantial influence on the legislation with their activities. These activities include campaign participation in a way to deny or support a particular candidate. Also, they should not be lobbying except when the expenditure amount goes below a specific amount.
The main reason for exemption from tax payment is because the non-profit organizations are beneficial to the public. The only money that can be deducted as tax from non-profit organizations ends up to other businesses or people. Therefore, non-profit organizations pay no tax for money earned through activities of fundraising or donations—section 501(c). (3) refers to an organization's accumulated fund.