Revolving Fund

Definition§

A revolving fund is an account or sum of money that, when used or borrowed, is intended to be replenished back to its original balance upon receipt of revenue or repayment. This structure enables the fund to be used repeatedly for similar expenses or loans. Revolving funds are commonly used for ongoing operational expenses, grants, infrastructure projects, and other financial activities where the need for recurring financial support is evident.

Examples§

1. Petty Cash Fund:

   • A petty cash fund in an organization is a classic example of a revolving fund. Small amounts of cash are used for minor office expenses, and the fund is replenished as it gets depleted.

2. Maintenance Funds:

   • Funds allocated for routine building maintenance in an organization can be treated as revolving funds, with expenses covered from the fund and replenished regularly to maintain levels.

3. Grant Programs:

   • Certain grant programs use a revolving fund system, where the repayment of loans or fees is used to provide funding for future projects.

4. Enterprise Revolving Funds:

   • Local governments sometimes use enterprise funds for services like water supply or wastewater treatment. The revenues from these services replenish the fund for future use.

Frequently Asked Questions (FAQs)§

Q1: What distinguishes a revolving fund from other types of funds?

• A1: Unlike other funds that are designated for one-time use, a revolving fund is specifically designed to be replenished and reused continually.

Q2: How is a revolving fund typically managed?

• A2: A revolving fund is managed by monitoring expenditures and ensuring timely replenishment of the funds. This can involve regular audits and reconciliations.

Q3: Are there any legal constraints on establishing a revolving fund?

• A3: Yes, the establishment and operation of revolving funds may be governed by specific legislative or organizational policies, including regulations on fund use and replenishment procedures.

Q4: Can revolving funds generate interest?

• A4: Depending on how they are managed, revolving funds can potentially generate interest if the balance is kept in interest-bearing accounts.

Q5: Is a revolving fund suitable for large-scale projects?

• A5: Revolving funds can be used for large-scale projects, especially if the project involves recurring expenses or investments with regular returns.

Related Terms§

• Petty Cash Fund: A small amount of cash on hand for minor, incidental expenses.
• Operating Budget: The detailed projection of all estimated income and expenses based on forecasted revenue during a given period.
• Capital Fund: A fund allocated for long-term investments and capital expenses.
• General Fund: The main operating fund used by an organization, typically for unrestricted purposes.
• Working Capital: The capital available to an organization for day-to-day operations.

References§

1. Investopedia – Revolving Fund
2. Wikipedia – Revolving Fund
3. U.S. Department of the Treasury Revolving Fund Manual

Suggested Books for Further Studies§

1. Financial Management for Public, Health, and Not-for-Profit Organizations by Steven A. Finkler
2. The Essentials of Finance and Budgeting by Harvard Business Review
3. Financial and Accounting Guide for Not-for-Profit Organizations by John H. McCarthy
4. Managing Nonprofit Organizations by Mary Tschirhart and Wolfgang Bielefeld
5. Handbook of Public Administration by James L. Perry and Robert K. Christensen

Fundamentals of Revolving Fund: Finance Management Basics Quiz§

Thank you for exploring the comprehensive details of revolving funds as a fundamental aspect of financial management. Your curiosity and dedication will help deepen your understanding!