What is the social fund of a company?

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 shareholders. 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 the accounts that form part of the capital. Let's take a look at what it is 👇.

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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:

• 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, which do not require an initial monetary contribution;
• Foundations, where the initial financial contribution varies according to their characteristics.

Shareholders' equity vs. equity capital

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

The main difference between the two accounts is:

• Social fund refers to the capital of non-commercial entities;
• Share capital refers to the capital of commercial companies (public limited companies, private limited companies, etc.).

☝️ In both cases, we are talking about the capital contributed by their 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 in the chart of accounts of the Chart of Accounts of the General Chart of Accounts.

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

Accounting for shareholders' equity → Basis

In the balance sheet it is located in the right-hand column under Equity.

☝️ Caution! Social fund contributions must be shown separately on the assets side of the balance sheet, depending on their nature.

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

• The initial contribution and increases in the share capital are credited (against account 194).
• Capital reductions and, if necessary, the termination of the entity are debited.

☝️ All debit entries are referred to as debits. Credit entries are also referred to as credit entries.

Accounting for the social fund → Example

Let's imagine the following situation:

🔵 Three friends decide to go ahead with a project: to set up an association to fight climate change. To do so, they make a list of needs and deduce that, before starting, they need to make various 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 side is the sum of the debit side.

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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 spending time on 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.

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