Fund accounting Introduction
Accounting – a process of identifying, recording, summarizing, and reporting economic
transactions to decision makers in the form of financial statements.
Fund accountant/ fund administrator records all transactions that occur within the fund on a daily
basis and provide investors with an independently calculated measure of investments value (NAV).
Fund Administrator/ Fund accountant is the job title of the individual who carries out duties:
•Calculation of the value of investment portfolio (fund NAV)
•Recording all securities transactions, such as buys and sells of investment portfolio
•Accruing and recording all income, such as dividends and interest payment
•Recording all realized capital gains that results from transactions in the fund
•Recording all inflows and outflows of funds due to purchase and redemption of shares by investors
•Maintaining the books of records and documentary support
•Preparing of annual and semi-annual accounts
•Assisting the funds auditors in the audit of year end accounts
•Central bank reporting
Asset = Capital + Liabilities
WHAT THEY ARE: WHO SUPPLY THEM:
DOUBLE ENTRY BOOKKEEPING:
The total of assets is always equal to total liabilities.
Any transaction which will change the amount of total assets must also change the total liabilities
and vice versa.
ASSETS, LIABILITIES, INCOME,CAPITAL, EXPENSES,
Assets are resources held by the entity, fund assets would include property, equity investment, bond
investment, commodities, currencies, cash, interest receivable, prepaid organisational costs.
Liabilities consist of money own for goods- settlement of transactions , accrued expenses .
Capital is the initial amount invested by investors in the form of subscription to the fund.
Income is dividend and interest payment to the fund.
Expenses costs incurred by the fund in particular time i.e. investment management fees, fixed expenses,
Gain/Loses unrealised and realised gain or loss on investment.
DEBIT AND CREDIT:
A debit entry means the business “owns”.
A credit entry means the business “owes”.
Which account receives the credit entry and which receives the debit depends from the nature of the transaction.
An increase in an expense (i.e. an accrual of audit fees) or an increase in an asset (e.g. a purchase of
computer equipment) is a debit entry to the expense account
An increase in income ( i.e. an accrual of a dividend) or an increase in a liability (e.g. buying goods on credit)
is a credit entry to the income account
A decrease in an asset (e.g. making a cash payment) is a credit entry to the asset account
A decrease in a liability (e.g. paying a creditors) is a debit entry to the liability account.
Assets – Liabilities = Capital + Income + Gains – Expenses – Losses
The Bond Equity fund was launched on 15th May 2013, the currency of the fund is the US Dollar, the
initial subscription price was €10, on day 1:
a) The Fund receives total subscription of €1 250.000;
Debit entry to the Cash account – cash increase by €1 250 000
Credit entry to Capital account- capital increase by €1 250 000
b) Daily accrual of the organisational expenses €500;
Debit entry to the Organisational expenses – expense balance increase by €500
Credit entry to Accrued/prepaid organisational expenses- accrued balance increase by €500
c) The Fund manger pays organisational costs;
Debit entry to the Prepaid organisational expenses – expense balance increase by €500 * 30
Credit entry to Cash account – cash decrease by €500 * 30
d) Purchase of a security for cash for €1 000 000
Debit entry to the Securities/ Equities account – asset increase by € 1 000 000
Credit entry to Cash account- cash is paid, decrease by €1 000 000
Not all transactions are settled immediately in cash:
e) Purchase of US TREASURY Bond €9 500 000;
Debit entry to the Bond investment account – asset value increase by €9 500 000
Credit entry to Account receivable – balance of the account increase by €9 500 000
f) Sales of bond for € 500 000 (assuming no gain or loss generated)
Debit entry to the account payable – balance account is increase by €500 000
Credit entry to the Securities/ Equities account- asset value decrease by €500 000
g) Payment of €9 500 000 for the stock
Debit entry to the creditors account/ account receivable – the amount owing to creditors is
reduced by €9 500 000
Credit entry to cash account- cash is paid by €9 500 000
h) Receipt of sales proceeds of €500 000 from customer:
Debit entry to the cash account – cash is received €500 000
Credit entry to debtors account/ account payable – the amount due from debtors is reduced
by €500 000