What is a Fund Accounting System and does our CSO need one?

We manage all our finances in a single Excel spreadsheet right now. We have about four different funders and each one gave us money for specific activities — it’s getting really messy trying to track which money has been spent on what. Someone mentioned we need a ‘fund accounting system’ but I’m not sure what that means practically. Is it just a different way of organising a spreadsheet, or do we need specific software? And if we accidentally mix up funds from different donors, what are the actual consequences?