Question

Explain Governmental Funds and its types?

Answer 1

First you must know what is Fund ?

Funding is the act of providing resources, usually in form of money, or other values such as effort or time, for a project, a person, a business, or any other private or public institution (wikipedia)

So, ultimately fund is something that is used to discharge the activities of an organisation. here we are specifically talking monetary funds. it is different from capital.the allocation of funds is not done with a view to earn profit.

Governmental Funds - these funds are used to discharge the governmental obligations.These activities includes tax - supported activities. Its opposite is a proprietary fund, which accounts for business-like activities conducted by the government.

There are three major groups of governmental funds. i.e. governmental, proprietary and fiduciary. groups are different from types.

the types of governmental funds are -

1. General funds - Used to account for all financial resources that are not restricted to specific purposes. this fund is used to discharge all the activities for which any other fund is not allocated.

2. Special Revenue funds - Used to account for general government financial resources that are restricted by law or contractual agreement to specific purposes other than debt service or major capital projects. the effect of allocation of such funds can be seen by public. For eg - In specific Project like school, hospital etc citizen can see funds allocated and revenue generated.

3. Debt service funds - In general term as the name indicates these types of funds are used to meet the principle and interest obligations regarding the debt taken previously. similarly in case of government these funds are used to pay back long-term debt issued in order to finance specific government projects.

4. Capital Project Funds - In most of the businesses there may be some capital asset which is constructed for the further use. the funds allocated to generate or construct that capital asset are capital project funds. same in the case of government they have various types of projects for eg - libraries, governmental buildings and offices, parks operated by government etc these projects are funded by Capital project funds.

5. Permanent funds - It is a restricted true endowment funds i.e the income arising out of such funds will be used and not the original funds. these funds are used only to generate and disburse money to those entitled to receive payments by qualification or agreement. these funds are never used that's why they are permanent. alaska permanent funds is a good example.