Question

What are the major sources of funds for capital project and debt service funds, and how are the sources classified in the Statement of Revenues, Expenditures, and Changes in Fund Balance?

Answer 1

A major source of funding for capital projects funds is the issuance of long term debt. In addition to debt proceeds, capital projects funds may receive grants from other governmental units, proceeds of dedicated taxes, transfers from other funds, gifts from individuals or organizations, or a combination of several of these sources.

a.Property taxes levied specifically for the Debt Service Fund- Treated as Revenues

b.Cash received from General Fund to finance debt service payments-Other financing sources

c.Cash received from General Fund to finance part of the cost of new police headquarters- Treated as Other financing sources

d.Grant from state to finance part of cost of new police headquarters- Treated as Revenues

e.Proceeds of bonds issued to finance part of the cost of new police headquarters- Treated as Other financing sources

f.Interest earned on investment of resources being accumulated to finance construction-Treated as Revenues

g.Increase in fair market value of investments being accumulated to finance construction- Treated as Revenues

h.Bond premium received by Debt Service Fund from Capital Projects fund- Treated as Other financing sources

Following revenues and expenditures, the statement includes a section for other financing sources and uses. Similar to revenues and expenditures, these amounts are inflows and outflows of current financial resources and, therefore, contribute to the net change in fund balances.

However, the terms revenue and expenditure are generally used only for amounts that increase or decrease the net assets of the government as a whole—not just those of individual funds. In contrast, most other financing sources and uses affect individual fund balances but not the net assets of the government as a whole.

Interfund transfers are essentially nonrepayable subsidies from one fund to another. Proceeds of debt increase a governmental fund balance because they are an inflow of current financial resources. However, they do not increase the government’s net assets because the government has incurred a corresponding liability, which is reported in the government-wide statement of net assets. Inasmuch as bond proceeds are recognized as a liability in the government-wide statements but as a financing source in the fund statements, they must be included in the reconciliation between the two sets of statements

The net effect of other financing sources and uses can be to convert a potentially negative change in fund balance, resulting from an excess of expenditures over revenues, to a positive change due to the receipt of transfers or bond proceeds. Correspondingly, transfers-out can convert an excess of revenues over expenditures into a negative change in fund balance.

Orlando’s general fund, for example, reports a revenue/expenditure deficiency of $5.2 million, but a positive net change in fund balance of $4.3 million. Users should be aware that only revenues and expenditures contribute to a change in the net assets of the government as a whole ($41.5 million for the total primary government .

PROPRIETARY FUNDS :

Proprietary Funds Statement of Net Assets The net assets statement of proprietary funds focuses on the major enterprise funds but also includes a column for all nonmajor enterprise funds combined and a column for all internal service funds combined.3 The measurement focus of proprietary funds is on economic resources. Accordingly, the funds are accounted for on a full accrual basis. Not surprisingly, therefore, the format of the proprietary fund statement of net asset