Question

For what purpose are fiduciary funds typically used?   
Give one example of a fiduciary funds and describe the typical activity that one would expect in this fund.

Answer 1

Fiduciary in simple finance angle just means a paper currency which has its value based on the securities it posses.Fiduciary funds can be defined in the following way;-

Fiduciary funds are used to account for assets held by a government acting as a trustee or agent for entities external to the governmental unit, including individuals, organizations, and other governmental units. Therefore fiduciary funds are often shown in Govt financial statements as TRUST or AGENCY FUND.

A fiduciary fund is used in governmental accounting to report on assets held in trust for others. When financial statements are prepared for fiduciary funds, they are presented using the economic resources measurement focus and the accrual basis of accounting. There are manily four types of fiduciary funds as explained below

1. Agency Funds
2. Pension Trust Funds
3. Investment Trust Funds
4. Private Purpose Trust Funds

Now Answering the second part of the question, one type of activity carried out in Agency Fund

Agency funds are used to account for assets held solely in a custodial capacity. As a result, assets in agency funds are always matched by liabilities to the owners of the assets.

The accounting and financial reporting for agency funds are unique and do not really follow those of governmental funds or proprietary funds. Agency funds use the modified accrual basis of accounting for purposes of recognizing