Question

Tell why governments use special revenue, permanent, capital projects, and debt service funds.

Answer 1

Step 1 : Use of Special Revenue Funds by Governments

Special revenue funds are intended to be used to report specific revenue sources that are limited to being used for a particular purpose, such as transportation aid. In practice, governments also use them to report all of the financial activities associated with a single function (such as road maintenance), classes of revenues (for example, all federal grants) and "rainy day" resources.

Step 2 : Use of Permanent Funds by Governments

Permanent funds accounts for resources that cannot be expended, but must be held in perpetuity. Generally, these resources are invested and government may spend the earnings, often for a purpose specified by the provider of the resources.

Step 3 : Use of Capital Projects Funds by Governments

Capital projects funds account for the construction, rehabilitation, and acquisition of capital assets, such as buildings, equipments, and roads. Governments are not required to account for all capital expenditures in this fund type, however, and therefore it may also appear in the general fund or even special revenue funds.

Step 4 :  Use of Debt Service Funds by Governments

Debt service funds account for the repayment of debt. If a government is accumulating resources for the purpose of making debt service payments, it should report them in a debt service fund.

Therefore all the above mentioned points are the use of special revenue, permanent, capital projects, and debt service funds by governments.