Question

1. What are the five types of governmental funds? List and describe the 5 types. Provide an example of a transaction that would be included in each type.

Answer 1

Government Funds:

It focuses on current financial resources raised and expended to carry out general government purposes. GASB Statement No. 54 provides definition of government fund types.

Types of Government Funds:

1. The General Fund: It is setup to account for the ordinary operations of a governmental unit which is financed from taxes and other general revenues. All other transactions which are not accounted for in other funds are accounted in General Fund. This fund does not contain any fixed asset or long term debt accounts. Example It includes expenditures for functions such as Public safety, culture and recreation, public works and engineering.

2. Special Revenue Fund: It is setup to account for revenues from specific taxes or other earmarked sources that(by law) are restricted or committed to finance particular activities of government. Example Motor fuel tax limited by law to highway and street constuction and repair.

3. Debt Service Fund: It is setup to account for the accumulation of resources and payment of interest and principal on all 'general obligation debt' other than serviced by enterprise funds. Resources of the fund are restricted, committed or assigned to debt service expendtiures. Example A city establishes a debt service fund to account for serial issue of $200 million 8% bonds sold at 101. Principal is to be paid evenly over the period of 20 years beginning at end of year 1.

4. Capital Project Funds: It is setup to account for resources restricted, committed or assigned for the accquisition or construction of major capital assets example Buildings, Highways & Bridges, Storm water drainage systems by a government unit. Example A contract signed with a architectural firm in the amount of $50,000 for the completion of the architectural design for a new building. Entry would be made in capital project fund.

5. Permanent Funds: It is used to account for and report resources that are restricted to the extent that only earnings, and not principal may be used to support goverment programs which benefit government or its citizens. Example Famous example is Alaska Permanent Fund, which serves to hold minimum of twenty five percent of state's income from mineral lease rentals, royalty sale proceeds, mineral revenue- sharing payments from the federal government and bonus money received by the state.