Governmental Funds and Financial Statements Pt. 1 Flashcards
What is the general fund?
it is created at the beginning of the governmental unit, and it exists throughout the life of that unit; the general fund accounts for the general activities of a government that are not accounted for by any other fund
the general fund usually has the largest variety of revenues in a governmental unit; sources of general fund revenues frequently include all of the earnings types contemplated by governmental reporting models: taxes, public safety and regulation, intergovernmental, charges for services, and other revenues (ex. investment earnings)
the general fund usually has the largest share of expenditures in a governmental unit; sources of general fund expenditures frequently include most of the current functional expenditure types contemplated by governmental reporting models: general government (administrative functions of the government), public safety, and culture and recreation
the general fund uses the modified accrual basis of accounting, and formally records its budget in its accounting system; there is only one general fund per reporting entity and it is always reported as a major fund
the general fund automatically finances other funds by making a loan (to a special revenue fund for financing a special assessment), making a contribution of equity or revenue (called an interfund transfer) to a debt service fund or internal service fund, and by making up a deficit in an enterprise fund
the general fund is an operating catch-all fund for items not accounted for in other funds, such as major and miscellaneous revenues/expenditures
the general fund and all other governmental funds produce the following fund financial statements:
balance sheet (current assets and deferred outflows = current liabilities and deferred inflows + fund balance)
statement of revenues, expenditures, and changes in fund balance
What is the special revenue fund?
it accounts for revenues and expenditures that are legally restricted or committed for specific purposes other than debt service or capital projects; the life of the special revenue fund may be limited or unlimited but resources are expendable
special revenue funds account for revenues legally restricted for specific purposes and are often classified as either intergovernmental revenue or fees; examples of intergovernmental revenues include: specific taxes, shared taxes, and grants
special revenue fund expenditures include current operating expenditures (ex. street maintenance) and capital outlays (ex. highway construction - not special assessments)
expendable trust activities (ex. scholarship and endowment funds) represent funding whose principal and income may be expended in the course of their designated operations so that they are depleted by the end of their designated lives; expendable trust activity should be accounted for in a special revenue fund; expendable trust activities may include capital outlay expenditures, depending on the character of the endowment; when a donation is received by an expendable trust, cash or current assets is debited and revenue is credited; donations may be donor/grantor restricted (principal and interest) or government restricted, such as assets used for illegal activities that are seized and surrendered to the government under various forfeiture acts
when a grant is received, the recipient government monitors and/or determines eligibility; revenues and expenditures are recognized equally based on payments of the grantor
the rule of thumb for use of the correct fund is:
monitoring (administrative involvement) = special revenue fund
non-monitoring (no administrative involvement) = custodial funds
What is the debt service fund?
it is created to account for the accumulation of resources (cash and investments) and the payment of currently due interest and principal on long-term general obligation debt (which is generally serial bond debt); the debt service fund pays off the debt of the GRaSPP funds, but does not pay off the debt of the SE-CIPPOE funds
the debt service fund’s resources for repayment of new debt are frequently derived from allocated portions of property taxes and transfers from other funds; proceeds from bond issues to refund (refinance) debt are accounted for in debt service funds as other financing sources
the debt service fund makes actual expenditures associated with the principal and interest on general obligation long-term debt; when the debt service (debt) payment is legally due, the debt service fund recognizes principal and interest as expenditures; encumbrance accounts are not used in debt service funds
principal and interest expenditures should be recorded when they are legally payable per the bond agreement; there is no profit motive and no need to apply the matching principle, so principal and interest are not accrued during the reporting period
debt service funds are required only when legally mandated and/or when resources are being accumulated for general long-term debt principal and interest payments maturing in future years
the general fund may pay interest and principal directly to the bondholders instead of directly to the debt service fund, unless the use of a debt service fund is mandated; the general fund may incur long-term debt under lease obligations that are either contracts that transfer ownership or leases other than short-term leases and contracts that transfer ownership (ex. for copiers at city hall) and fully account for the principal and interest payments on that debt
the operations of this fund are similar to a commercial accounting “sinking fund” which buys investments, earns interest, and eventually pays off the debt with accumulated investments
the full face value (less current installments) of the general obligation debt is not reported in this fund; debt service fund expenditures are only used to pay currently payable principal and interest (matured bonds/interest payable)
the balance and interest payable in the debt service fund represent currently due installments only reported in the liabilities sections as matured bonds payable and matured interest payable
