Fund Accounting -- Government Entities Hartwell C. Herring III University of Tennessee

The Four Governmental Funds l General Fund l Special Revenue Funds l Capital Projects Funds l Debt Service Funds

Accounting for Governmental Funds l The Measurement Focus is Flow of Current Financial Resources l The Basis of Accounting for Governmental Funds is Modified Accrual accounting - accruals are made for operating items but debt service and capital expenditures are charged to operations -- there are no long- term assets and liabilities

General Fund l Primary operating fund for general government operations l Resources -- tax revenues, intergovernmental transfers, grants, debt l Outflows -- –Expenditures for operations, debt service, capital –Transfers to other funds

Special revenue l Established for legally restricted resources such as road use and fuel taxes, wildlife resources management, and Federal entitlement programs l Accounting procedures are identical to the GF

Capital Projects l Expendable fund used to account for construction of general capital projects (not fund projects) l Uses modified accrual accounting l When the project is completed, the asset and related debt are recorded in Account Groups and the fund is closed

Debt Service l A fund established to make principal and interest payments on General Long Term Debt l Note that only General Long Term Debt is paid from the DS fund. The long term debt of proprietary funds is in the proprietary fund l DS funds use “when due” accounting

There are Two Account Groups l General Fixed Asset Account Group l General Long Term Debt Account Group

Accounting in Account Groups l Account groups are just listings of assets or liabilities in a double entry format l Account groups are not funds because they have no resources available for expenditure

There are Two Types of Proprietary Funds l Enterprise Funds l Internal Service Funds

Enterprise Funds l Enterprise Funds are established to account for business type activities that are run by a government. l Examples include Utilities, Airports, Golf Courses, and Transit Companies l These funds use full accrual -- flow of economic resources measurement focus

Internal Service l These are established to account for activities that sell goods and services to other areas of government. l Examples include Motor Pools, Data Processing, and Self Insurance Pools l These funds also use full accrual -- flow of economic resources measurement focus

There are Four Types of Fiduciary Funds l Expendable Trust Funds l Non-Expendable Trust Funds l Pension Trusts l Agency Funds

Expendable Trusts l Account for gifts that can be spent -- either principle and interest or interest from a non- expendable trust l These funds use modified accrual accounting

Non-expendable trusts l A full accrual fund for gifts that are permanently restricted by external donors l Only the income can be spent l Income is transferred to an expendable trust for disbursement

Pension trusts l Pension assets of governmental organizations are a significant factor in our economy l State and Local Government pension plans are generally fairly fully funded defined benefit plans l Some government and most nonprofit workers have defined contribution plans

Agency Funds l These funds are established for funds that the government holds in trust l The principles examples are pass-through situations and tax agency funds

Government C&U Funds An overview

Two current funds l Current unrestricted -- accounts for operations financed by unrestricted sources –Tuition –Most appropriations –Unrestricted current gift income –Sales of services l Current restricted -- accounts for externally restricted income for research and other items

Four Plant Funds l Unexpended -- money for new plant l Renewals and replacements -- money to replace plant l Retirement of indebtedness -- money to retire long term debt l Investment in plant -- the plant assets and the long-term debt related to those assets

Numerous trusts l Permanent endowment l Temporary endowment l Life income l Annuity l Agency

Government College and University Accounting l Generally modified accrual is used l Reporting is fragmented into funds l The financial statements are difficult to use and understand l No attempt is made to measure many critical performance variables