What is a company's social fund?

In accounting, there are different financial indicators that allow us to know the capital owned by a given company.

In terms of accounting accounts, capital refers to the company's equity contributed by the partners. Depending on the legal form of the company, this must be recorded in one account or another.

And without leaving aside the accounts, the Social Fund is one of those that are part of the Capital. Let's see what it consists of! 👇

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What is a social fund?

The social fund is the capital of non-commercial companies, i.e. those entities that - generally speaking - have a non-profit purpose.

How is a social fund constituted?

It is made up of all the contributions that have been made in order to increase the capital of the entity either:

• At the time of its foundation,
• or during the course of its activity (increase of the social fund).

☝️ Contributions can be both monetary and non-monetary.

Types of non-commercial companies

The concept of "non-commercial company" includes different legal forms. Although they are not the only ones, the two most relevant in Spain are:

• Associations, for which no initial monetary contribution is required;
• Foundations, where the initial financial contribution varies according to their characteristics.

Shareholders' equity vs.

According to the General Chart of Accounts, there are different accounting accounts to account for the Capital (10) of a company or entity.

Thus, within the Capital and together with the Shareholders' equity, there is the Shareholders' equity account (100).

The main difference between both accounts is:

• The Shareholders' equity refers to the capital of non-commercial entities;
• The Shareholders' equity refers to the capital of commercial companies (Corporations, Limited Liability Companies, etc.).

☝️ In both cases, we are talking about the capital contributed by its partners or founders.

💡 There is also the accounting account 102, called "Capital". This account reflects the contributions of individual members.

How is the social fund accounted for?

To begin with, it should be noted that the social fund is referenced as account 101 within the chart of accounts of the PGC.

💡 Account 101 is part of Group 1 of the chart of accounts, called Basic funding. In total, there are nine groups:

Accounting for shareholders' equity → Basis

In the balance sheet it is located in the right column, within Shareholders' equity or Equity.

☝️ Caution! Social fund contributions must be accounted for under assets, separately and depending on their nature.

The accounting entries are to be made on the basis of the double entry principle (debit and credit). It is accounted for as follows:

• The initial contribution and capital increases are credited (against account 194).
• Capital reductions and, if the time comes, the entity's extinction, are debited.

☝️ All debit entries are called " debits". Likewise, credit entries are called " credit".

Posting the social fund → Example.

Let's imagine the following situation:

🔵 Three friends decide to throw forward a project: to set up an association to fight against climate change. To do so, they make a list of needs and deduce that, before starting, they need to make different contributions that will allow them to work properly:

• 3 laptops,
• 3 desks,
• 3 chairs.

They themselves are in charge of getting the material, which they pay for with their own savings.

👉 The seat would look like this:

☝️ The total of the credit is the sum of the debit.

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As you can see, this is a fairly simple exercise. However, it is often this type of exercise that prevents a company or professional from investing their time in other priorities.

If you want to manage your accounting quickly and efficiently, accounting software is a resource that will help you automate and schedule tasks, as well as avoid common mistakes. What's more, using them doesn't require any training.

There are many to choose from, there is sure to be one that is perfect for you and can help you improve your performance! Is it or is it not a good strategy?