301160 Fiduciary Fund 1C1 Flashcards
Which of the following funds would be reported as a fiduciary fund in a municipal government’s financial statement?
Special revenue
Permanent
Private-purpose trust
Internal service
Question #301160
Private-purpose trust
A private-purpose trust fund is correct. Municipalities must apply GASB standards in selecting the appropriate fund to utilize when managing the public’s resources. The private-purpose trust is a fiduciary fund (or trust account) used to manage the principal and interest earned from individual, nonprofit, or other governments’ donations that are targeting a specific private class.
A special revenue fund is incorrect. This is a governmental fund typically funded by special taxes or federal/state grants earmarked for specific activities.
A permanent fund is incorrect. This is a governmental fund in which only the interest earnings, not the principal, can be used to support government programs targeting or made available to the general public
An internal service fund is incorrect. This is an example of a proprietary fund that is used to account for services provided by one department of a government to another, generally on a cost-reimbursement basis.
GASB 1300.102
Governmental Funds
Governmental funds are funds used to account for the financing of general government functions and activities, such as police and fire protection, courts, inspection, and general administration. Governmental funds are used to account for the acquisition, use of (changes in), and balance of the government’s expendable financial resources and related current liabilities (except those accounted for in proprietary funds). Governmental funds are accounted for on the modified accrual basis.
GASB 1300.102
The accounting equation is:
- Current Assets - Current Liabilities = Fund Balance, and
- Revenues - Expenditures + Other financing sources - Other financing uses = Increase (Decrease) in Fund Balance.
Operations are measured in terms of sources and uses of working capital (governmental units are not required to prepare a Statement of Cash Flows). Net income is not measured.
Governmental funds are:
- General Fund,
- Special Revenue Funds,
- Capital Project Funds,
- Debt Service Funds, and
- Permanent Funds.
Permanent Fund
In governmental accounting, a permanent fund is a governmental fund to be used to account for resources legally restricted such that only the earnings, not the principal, may be used to support the reporting government’s own programs. The government itself is the beneficiary of the earnings. A private-purpose trust fund, a fiduciary fund, should be used if the benefits accrue instead to individuals, private organizations, or other governments.
GASB 1300.108
Proprietary Funds
Proprietary funds are funds used to account for the ongoing activities of a governmental unit which are financed and operated in a manner similar to commercial (business) activities (e.g., utilities, swimming pools, print shops, motor pool) where the intent of the governing body is that the costs (expenses, including depreciation) of providing the goods or service on a continuing basis shall be financed or recovered primarily through user charges (either external or internal users). Proprietary funds are accounted for on the accrual basis in the same way as a business enterprise. Proprietary funds include accounts for all related assets and liabilities (not just the expendable current assets and related current liabilities as in the governmental funds) and net position (or fund equity) reported in three categories: net investment in capital assets, restricted, and unrestricted. The capital assets and long-term debt of the proprietary fund are recorded in the accounting records of the fund.
GASB 1300.102
The accounting equation is:
- Assets + Deferred outflows of resources - Liabilities - Deferred inflows of resources = Net position
Operations are measured in terms of revenues earned and expenses incurred, and are reported in three categories: Operating, Nonoperating, and Other (e.g., capital contributions, special items, and transfers).
Proprietary funds are:
- Enterprise funds and
- Internal service funds.
Financial statements required for proprietary funds are the same as for businesses:
* Statement of Net Position,
* Statement of Revenues, Expenses, and Changes in Fund Net Position, and
* Statement of Cash Flows.
GASB 2200.170–.190
2131.08
a. Governmental funds
Types of funds. The GASB requires the following categories and types of funds.
a. Governmental funds: To finance and account for general government activities, such as police and fire protection, courts, inspection, and general administration. Most of their financial resources are budgeted and appropriated annually for specific general government uses (expenditures) by the legislative body. Governmental funds include the following:
(1) General fund
(2) Special revenue funds
(3) Capital projects funds
(4) Debt service funds
(5) Permanent funds
The accounting equation for governmental funds is presented in the GASB authoritative literature as Financial assets + Deferred outflows = Related liabilities + Deferred inflows + Fund balance.
The accounting equation of most governmental funds also can be thought of and perhaps more easily understood as Current assets (CA) − Current liabilities (CL) = Fund balance (FB).
Note that the governmental fund accounting equation typically approximates a working capital equation, and governmental fund operations are measured in terms of sources and uses of working capital (i.e., changes in working capital or in net current financial resources).
The accounting equation is not truly a working capital equation. For instance, “related liabilities” excludes many liabilities that affect working capital because liabilities for claims, judgments, compensated absences, pensions, and so on are included in governmental funds only when due and payable. However, many find it useful to understand the accounting for these funds by relating it to working capital reporting.
Permanent funds are a special type of governmental fund that is used to account for and report amounts that are restricted in use. Usually this is the case when assets are a gift to the governmental entity and the principal amount is restricted in use. Income from such assets may be used for support of government programs.
2131.08
b. Capital assets and long-term liabilities
b. Capital assets and long-term liabilities: Because the governmental funds are primarily working capital (or net expendable financial assets) entities, general government capital (fixed) assets are not accounted for in these funds. Likewise, general government long-term liabilities (with the exception of long-term interfund liabilities) are not accounted for in governmental funds. Therefore, these capital assets and long-term liabilities must be accounted for separately. These general government capital assets and long-term liabilities are reported only in government-wide financial statements, not in the governmental fund financial statements. GAAP does not mandate a specific accounting entity to maintain accountability for general government capital assets (called general capital assets) and general government long-term liabilities (called general long-term liabilities). They are not reported independent of the government-wide financial statements. Because different governments use different forms of general capital asset and general long-term liability ledgers to maintain accountability for these items, we do not illustrate them in the journal entry illustrations. (Note that all other capital assets and long-term liabilities are reported either in a proprietary fund or in a fiduciary fund.)
2131.08
c. Proprietary funds
c. Proprietary funds: To finance and account for a government’s self-supporting business-type activities (e.g., utilities). Proprietary funds include the following:
(1) Enterprise funds
(2) Internal service funds
The accounting equation of proprietary funds is similar to that of a business corporation. Thus, the proprietary fund accounting equation includes accounts for all related assets and liabilities—not only for current assets and current liabilities. However, proprietary funds also must report the deferred outflows of resources and deferred inflows of resources elements in proprietary fund statements of net position and report using different classifications than businesses. The accounting equation is:
* Assets + Deferred outflows of resources − Liabilities − Deferred inflows of resources = Net position
Note that assets include capital assets of the proprietary activity and other noncurrent assets as well as current assets. Liabilities include both current and long-term liabilities of the proprietary activity. The GASB states that the concepts of liquidity and current versus noncurrent classifications do not apply to deferred outflows of resources and deferred inflows of resources. Note also that contributed capital and retained earnings are not reported.
Proprietary fund operations are measured in terms of revenues earned and expenses incurred. However, net income or loss is not reported. Fund net position is reported in three categories:
(1) Net investment in capital assets
(2) Restricted net position
(3) Unrestricted net position
Proprietary fund operations are reported based on revenues earned and expenses incurred.
2131.08
d. Fiduciary funds
d. Fiduciary funds: To account for resources (and any related liabilities) held by a government entity for individuals or entities outside of the government (not to support the government’s programs). Fiduciary funds include the following:
(1) Pension (and other employee benefit) trust funds
(2) Investment trust funds
(3) Private-purpose trust funds
(4) Custodial funds
Fiduciary fund reporting focuses on fiduciary net position and changes in fiduciary net position.
