Fund accounting is a specialized accounting system primarily used by nonprofit organizations and governments to manage resources whose use is limited by donors, grants, or legal requirements, emphasizing accountability over profitability. This method organizes finances into self-balancing sets of accounts called "funds," which are categorized as either unrestricted, temporarily restricted, or permanently restricted based on the provider's imposed conditions. It enables organizations to meticulously separate financial resources intended for specific purposes from those available for general operations, ensuring money is spent as intended and providing a clear audit trail for various reporting obligations. For example, a school system might use distinct funds to manage state grants for special education or federal funds for lunch programs. It's crucial to distinguish fund accounting from investment accounting, which, despite a similar name, tracks portfolios of investments and is a separate system.