Fund Types and Accounting Principles Office of the Washington State Auditor

It differs profoundly from the accounting system used by for-profit commercial organizations. The objective of for-profit organizations is to maximize revenue and profit whereas nonprofit and government organizations have the goal of providing specified services with a fixed amount of revenues allocated. Government funds are the main source of revenue for any particular government. Similar to any business that operates, governments also establish set accounts in order to achieve certain aims and targets. Therefore, a government fund is defined as a group of funds that the government has received over the course of a fiscal year.

• To ensure the proper segregation of resources and to maintain proper accountability, a governmental entity’s accounting system should be organized and operated on a fund basis.
• Code Fiduciary Funds – should be used to account for assets, including capital assets (GASB 34, Paragraph 106), held by a government in a trustee capacity or as a custodian for individuals, private organizations, other governmental units, and/or other funds.
• With the use of funds, a governing body is able to establish and monitor how resources are allocated and spent, set and manage spending limits and achieve other fiscal accountability objectives.
• Only the minimum number of funds consistent with legal and operating requirements should be established.
• A clear distinction should be made between fund long-term liabilities and general long-term liabilities.

Both criteria must be met in the same element (assets, liabilities, etc.) for a fund to be defined as major. However, GASB Statement 34 permits a government to designate a particular fund that is of interest to users as a major fund and to individually present its information in the basic financial statements, even if it does not meet the criteria. However, a government does not have the option to not report a fund as major if it meets the criteria above. The government should also recognize transactions in which cash may have been exchanged by third parties on behalf of the government (e.g., bond issuances and bond retirement transactions, loan advances deposited and held by a trustee). The transaction should be recorded as if the cash was received and expended in order to reflect the legal transaction.

Reporting Principals and Requirements

When it comes to revenues under modified accrual for governmental funds, they are recognized when reasonably available, measurable, and collectible in the current period or soon after that; more akin to cash basis accounting. Whereas expenditures are recognized when a liability is incurred which follows along the line of full accrual accounting with certain exceptions. On the other hand, fiduciary and proprietary funds both use the full accrual basis similar to commercial entities. Financial statements for governmental funds should be presented using the current financial resources measurement focus and the modified accrual basis of accounting.

Basis of accounting refers to when revenues and expenditures are recognized and reported in the financial statements. (1) Activities accounted for in governmental funds by function, to coincide with the level of detail required in the governmental fund statement of revenues, expenditures, and changes in fund balances. In addition, GAAP mandate the use of enterprise funds for the separately issued financial statement of public-entity risk pools. Public-entity risk pools also are accounted for as enterprise funds when they are included within a sponsoring government’s report, provided the sponsor is not the predominant participant in the arrangement. Finding an appropriate fund type requires a careful analysis since there is not always a clear choice. For example, building permit fees may be accounted for in the general fund or a special revenue fund in certain circumstances, such as when they are partially supported by taxes.

Specific legal reporting requirements are contained in reporting part of this Manual. Proceeds of general long-term debt issues should be classified separately from revenues and expenditures in the governmental fund financial statements. In fund financial statements, the modified accrual or accrual basis of accounting, as appropriate, should be used in measuring financial position and operating results. Governments should discontinue reporting a special revenue fund, and instead report the fund’s remaining resources in the general fund, if the government no longer expects that a substantial portion of the inflows will derive from restricted or committed revenue sources. Although a local government has to report only one general fund in its external financial reports, the government can have multiple general subfunds for its internal managerial purposes.

Debt Service Fund

Revenues do not include other financing sources (long-term debt, transfers, etc.). Restricted revenues are resources externally restricted by creditors, grantors, contributors or laws or regulations of other governments or restricted by law through constitutional provisions or enabling legislation. The accrual basis of accounting is adjusted when dealing with governmental funds. The sum total of these adjustments is referred to as the modified accrual basis. Under the modified basis of accounting, revenue and governmental fund resources (such as the proceeds from a debt issuance) are recognized when they become susceptible to accrual.

Governmental accounting

As a result, modified accrual financial statements of governmental funds don’t report long-term assets/liabilities like capital assets and debt. Code Capital Projects Funds – should be used to account for and report financial resources that are restricted, committed, or assigned (intended) for expenditure for capital outlays including the acquisition or construction of capital facilities or other capital assets. Capital outlays financed from general obligation bond proceeds should be accounted for through a capital projects fund. Capital project funds exclude those types of capital-related outflows financed by proprietary funds or for assets that will be held in trust for individuals, private organizations, or other governments (private-purpose trust funds). Code Capital Projects Funds – should be used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays including the acquisition or construction of capital facilities or other capital assets.

Deferred Outflows/Inflows of Resources

However, what needs to be inculcated is the fact that it is supposed to be maintained on a perpetual basis because at the end of the day, government accounts also undergo an auditing treatment. The general fund, as the name suggests, accounts for the basic activities or the services that are provided by the government. Technically, it is used for all ‘general’ transactions that are not accounted for elsewhere.

The following principles are basic rules of accounting and financial reporting for cash based cities, counties and special purpose districts. Some types of funds use a different basis of accounting and measurement focus. To clarify the difference between these concepts, the basis of accounting governs when transactions will be recorded, while the measurement focus governs what transactions will be recorded. Proprietary fund revenues should be reported by major sources, and expenses should be classified in essentially the same manner as those of similar business organizations, functions, or activities.

Accounting Principles and Internal Control

Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions should be recognized when the exchange takes place. Revenues, expenses, assets, and liabilities resulting from nonexchange transactions https://accounting-services.net/governmental-funds-types-uses/ should be recognized in accordance with the GASB Statements 24 and 33. To ensure the proper segregation of resources and to maintain proper accountability, a governmental entity’s accounting system should be organized and operated on a fund basis.