Question

Discuss the various types of business-type funds used in governmental units and provide an example of when each is appropriate. Include how monitoring and reporting of business-type funds is similar and how it differs from the same functions in a corporation.

Answer 1

GOVERNMENTAL FUNDS

Governmental funds are those type funds, that are used to account for a governmnet's governmental type operations/activities. All the governmental funds are uses the modiefied accrual basis of accounting for it's accounts. It's a grouping used in accounting for tax-supported activities done by the federal government. Governmental funds includes :

• GENERAL FUND
• CAPITAL PROJECTS FUNDS
• SPECIAL REVENUE FUNDS &
• DEBT SERVICE FUNDS

Types of governmental funds

GENERAL FUND : It is the operating fund for the entire government. It is the primary fund used by an governemnet entity for it's operations. Such funds are mainly used to record all the inflow & outflow resources of special purpose -funds. The payment of operational tasks and administrative activities are to be done with these funds. These funds are refers to the revenues from taxes, fees, interest earnings etc. which can be used for the general operations of state government.

forexample : purchase of supplies & payment of operating expenditures.

CAPITAL FUNDS : It is the amount of money, that the shareholders of equity shares and the lenders are provided for the long-term and daily needs of business. For a company , it's capital funding includes debts and equity. Capital fund can be calculated by deducting the liabilities from the value of assets.This is used for the financial resources related to the construction of major facilities.

forexample : Purchase of land and building,landscaping, infrastructure development funds etc.

SPECIAL REVENUE FUNDS : These are the funds created by the government for the use of special purposes or specific projects. These funds provides an helping hand to taxpayers for accountability and transparency for their tax dollars. Thses are lehally restricted to specified purposes.

forexample : special funds allocated by the city for payment of expenditure for stormwater management.  

DEBT SERVICES FUND : These are the cash reserves which is used to meet the expenses or payments of certain types of debts. These are the funds used to report resources and payments of debt services . These funds are used only if legally mandated resources are being accumulated.

forexample : sinking funds and lease payments that are due in the coming year.

SIMILIARITIES OF GOVERNMENTAL FUNDS

• These are governement funds and created by the imposition of taxes and fees on citizens of the jurisdiction in the case of general and special funds.
• Both of these funds are exist on the three main level of governemnet

DIFFERENCES OF GOVERNMENTAL FUNDS

• All government have a general fund, but special funds are used for only specific purposes & not on a regular basis.
• Money from a special fund is restricted by law but the general fund has no such restrictions.
• Debt funds have lesser risks when compared to capital funds.
• Capital fund/equity funds are invests mainly in stock markets ;whereas debt funds in bonds and securities of government.