Governmental Fund Structure and Fund Accounting

Question 1

What categories are funds generally classified into?

Answer 1

governmental, proprietary, and fiduciary

a governmental entity, although a single entity, consists of a number of separate funds

Question 2

Governmental funds

Answer 2

governmental funds are accounted for using the modified accrual basis of accounting and current financial resources measurement focus

the source, use, and balance of the government’s current financial resources and the related current liabilities are accounted for through the use of governmental funds; governmental funds often have a budgetary focus, and seek to measure financial position and the changes therein; the focus of financial reporting is on the statement of revenues, expenditures, and changes in fund balance

governmental fund types include:

general fund - it is set up to account for the ordinary operations of a governmental unit that is financed from taxes and other general revenues; all transactions that are not accounted for in other funds are accounted for here

special revenue funds - it is set up to account for revenues from specific taxes or other earmarked sources that (by law) are restricted or committed to finance particular activities of government

debt service funds - it is set up to account for the accumulation of resources and the payment of interest and principal on all “general obligation debt,” other than that serviced by enterprise funds or by special assessments in another funds; resources of the fund are restricted, committed, or assigned to debt service expenditures

capital projects funds - it is set up to account for resources restricted, committed, or assigned for the acquisition or construction of major capital assets by a governmental unit, except those projects financed by an enterprise fund

permanent funds - it is set up to report resources that are legally restricted to the extent that income, and not principal, may be used for purposes supporting the reporting government’s programs (for the benefit of the public)

Question 3

Proprietary funds

Answer 3

these account for business-type activities, and their accounting is similar to commercial accounting (it uses the full accrual basis of accounting and economic resources measurement focus)

proprietary fund types include:

internal service funds - it is set up to account for goods and services provided by designated departments on a cost-reimbursement fee basis to other departments and agencies within a single governmental unit or to other governmental units; customers of the internal service fund are primarily internal

enterprise funds - it is set up to account for the acquisition and operation of governmental facilities and services that are intended to be primarily (more than 50%) self-supported by user charges; customers of the enterprise funds are primarily external

enterprise funds are required when any one of the three criteria is met:

the activity of the fund is financed by debt secured by a pledge of fee revenue

laws require collection fees adequate to recover costs

pricing policies are established to produce fees to recover costs

Question 4

Fiduciary (trust) funds

Answer 4

these account for assets controlled by a government in the capacity of a trust on behalf of beneficiaries with whom a beneficiary relationship exists; these funds are accounted for by using the full accrual basis of accounting and economic resources measurement focus

fiduciary fund types include:

custodial funds - it is set up to account for resources in temporary custody of the governmental unit (like taxes collected for another governmental entity) and any fiduciary activities hat are not required to be reported in other fiduciary fund classifications

investment trust funds - it is set up to account for external investment pools

private purpose trust funds - it is set up to account for activities not properly accounted for either as pension or investment trust funds, in which assets are dedicated to providing benefits to recipients in accordance with benefit terms and assets are legally protected from creditors of the government

pension (and other employee benefit) trust funds - it is set up to account for resources of defined benefit plans, defined contribution plans, post-employment benefit plans, and other long-term employee benefit plans

Question 5

What is fund accounting?

Answer 5

the measurement focus and basis of accounting used in government-wide and fund financial presentations facilitate the reporting of accountability objectives unique to each fund and to the government-wide presentation; the measurement focus of a fund is complemented by the basis of accounting used

the modified accrual basis of accounting is used with the current financial resources measurement focus

the accrual basis of accounting is used with the economic resources measurement focus

measurement focus determines the items to be reported on the balance sheet

for current financial resources, only current assets and current liabilities are included on the balance sheet; no fixed assets are reported and no non-current liabilities are reported

for economic resources, all assets and all liabilities are included on the balance sheet, including certain transactions classified as deferred outflows/inflows of resources; fixed assets are reported and non-current liabilities are reported

Question 6

Basis of accounting

Answer 6

this determines when revenues and expenditures/expenses are recognized and reported in the financial statements

the modified accrual basis of accounting is used with the current financial resources measurement focus; it is a blend of accrual and cash basis accounting concepts

revenue is recognized when measurable and available to finance the expenditures of the current period; the only difference between the timing of revenue recognition under the modified accrual and full accrual basis of accounting is the manner in which each basis defines the word available

available under the modified accrual basis means collectible within the current period or soon enough thereafter to be used to pay liabilities in the current period (generally within 60 days after year-end)

measurable means quantifiable in monetary terms

the full accrual basis of accounting is used with the economic resources measurement focus; it is identical to the accrual basis used in commercial enterprises; revenue is recognized when earned and expenses are recognized when incurred