Question

Briefly discuss the various types of governmental funds and proprietary funds.

Answer 1

Government funds are basically divided into three types. They are:

1. General Fund
2. Special Revenue Fund
3. Debt Service Fund
4. Capital projects Fund and
5. Permanent Fund.

General Fund is the main operating fund of the government. It is used for common purposes and purposes that aren't backed up by a designated fund. For example, the taxes paid by the citizens of the nation go into the general fund.

Special Revenue Funds are funds that are used for a specific purpose. They are issued for some specific purposes unlike the general fund. Funds released for the maintenance schools and parks are examples of special revenue funds.

Debt service Funds are maintained to pay off a lon gterm debt raised by the government to source some of its current projects. For example, if the government raises money through long term debt to source the construction of a building, it creates a debt service fund to pay off the principal and the interest of the debt raised.

Capital projects fund are funds raised for the completion of capital projects like the building of schools and facilities. These funds source the projects that are beneficial in the long-run.

Permanent Funds are a special type of funds that are given to a specific set of people who are entitled to recieve it. The best example of a permanent fund is the disbursements made to the people of alaska from the profits made through oil by the state.

Coming to proprietary funds, they are mainly divided into two types:

1. Enterprise Funds
2. Internal service Funds

Enterprise Funds are funds used to serve the public on an individual basis. Enterprise funds are utilised to provide basic amenities to every individual like water and sewage facilities.

Internal Service Funds are utilised to cover the costs incurred in the operation of other funds. Their main objective is to cover the expenses accumulated by other funds like the equipment used by government etc.,