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Chapter 4
Accounting for the General and Special Revenue Funds
Fund Accounting
The purpose of fund accounting is to segregate those financial
resources that have constraints or limitations on their use so that the
government may demonstrate compliance with those limitations.
General Fund
The General Fund reports those resources not subject to such
restrictions.
The General Fund is used to account for and report all
financial resources not accounted for and reported in
another fund
Many resources have no limitations on their use and do not
require segregation.
accounts for any resources not reported in one of the other
(limited-use) funds.
Every general purpose government will have one, and only one,
General Fund.
Special Revenue Funds
Account for and report the proceeds of specific revenue sources that
are restricted or committed (does not include assigned) to expenditure
for specified purpose other than debt service or capital projects.
Special revenue funds are an example of a fund established because of
constraints place on the use of government resources
Note, however, that special revenue funds are not used if the
resources are required to be used to acquire capital assets (capital
projects funds) or for the payment of interest and principal on longterm debt (debt service funds).
Although other resources may supplement a special revenue
fund, assignment of resources is not sufficient for the establishment of
a special revenue fund

Further, if the government expects that a substantial portion of

the resources supporting a special revenue funds activities
will no longer be derived from restricted and committed
revenue sources, the government should discontinue the use of a
special revenue fund and report the funds remaining resources in
the General Fund

Accrual
Recognize revenues when earned
Match expenses against the revenues when resources or services
are used.
Modified Accrual
Recognize revenues when measurable and available
(available to pay this years bills for example, property
taxes received within 60 days of yearend)
Recognize expenditures when the liability is incurred no
attempt to match to revenues, match to period of occurrence
only
Exception recognize interest and principal
payments as expenditures when DUE

An allowance for uncollectible taxes is recorded at the time of

a tax levy.
Since uncollectible amounts will not be available to finance
current expenditures, revenues are effectively reduced by the
amount of the estimate
Record levy:

Taxes receivable

1,075,000
Allowance for

uncollectible taxes

75,000

Revenue (net of
uncollectible)

1,000,000

The write-of of an uncollectible account does not afect

revenues or expenditures.
Allowance for uncollectible taxes

5,200

Taxes receivable

5,200

Modified Accrual Revenue Cycle

Assume

Property tax for 2015 levied = $1,000,000;

$800,000 is collected in calendar year 2015

$120,000 is collected in January and February 2016

$80,000 is collected in March and April 2016

ENTRIES DURING 2015:

Record levy:

Taxes receivable 1,000,000

Revenue

(tentative) 1,000,000
2015 collections

Cash

800,000
Taxes

Receivable

800,000

Yearend adjustment: Revenue

80,000
Deferred

Revenue

80,000

(Property taxes expected to be collected more than 60 days after year end
will be a 2016 revenue)
ENTRIES DURING 2016:

Beginning of Year Entry:

Deferred Revenue

80,000
Revenue

80,000

2016 Collections:
Cash

200,000

(120000+80000)

Taxes Receivable
200,000

Modified Accrual Expenditure Cycle

Supplies are ordered at an estimated cost of $ 3,500
Supplies are received with an actual cost of $ 3,000 plus shipping of $
250
Invoice from the supplies is paid
Journal Entries
1.Place Order

Encumbrances

3,500
Budgetary Fund Balance Reserve for Encumbrances

3,500
..........................................................................................................................
...............................
2.Receive Goods

1. Expenditures

3,250 (invoice amount)

Accounts Payable

3,250

REVERSE AT ORG. Amount 2. Budgetary Fund Balance -

Reserve for Encumbrances

3,500
Encumbrances

3,500
..........................................................................................................................
...............................

3.Payment

Accounts Payable

3,250
Cash

3,250
Short-term Borrowing
Cash

250,000
Tax Anticipation Note

Payable

250,000

Repayment
Tax Anticipation Note Payable
Interest Expenditure (6% for 3 months)

250,000
3,750
Cash

253,750

Interfund Transactions
Transactions between funds are of particular interest to financial
statement preparers and users since failure to properly report these
transactions results in two funds being misstated.
Additionally, since most of these transactions are eliminated in
the government-wide statements, it is particularly important that
they be identified in the accounts of the affected funds.
Interfund Transactions may be
1. Interfund Services (Quasi-external) transactions
They are treated as revenue and expense or expenditure of the
affected funds
Example, sale of electricity by the Electricity Enterprise
fund to the General Fund

The sale would be treated as revenue for Enterprise Fund

and expenditure for General Fund

2.Reimbursements - Initially, one fund pays for a good or service for another
fund.
When the reimbursement is made, the expense or expenditure is
recorded in the correct fund and the initial (incorrect) expense or
expenditure is reversed

Assume the government receives a bill for engineering

services in the amount of $10,000; and it is initially recorded in
the General Fund as follows:
GF: Expenditures

10,000

Accounts Payable

10,000

Later, it is discovered that $2,000 of these services were for

the Electricity Enterprise fund. The following would be
recorded:
GF: Due from Electricity

2,000

Expenditures
EF: Expenditures

2,000
2,000

Due to General Fund

2,00

3.Transfers
Any assignment of resources from one fund to another where there is
no expectation that the amounts will be repaid.

Transfers into a Fund are considered Other Financing Sources

transfer in
Transfers Out are considered Other Financing Uses transfer
out
Recurring Transfers (such as for debt service) are
commonly built into the General Fund budget

Special items
Special items are significant transactions that are either unusual or
infrequent but within the control of management.
Example: sale of a capital asset
The proceeds of capital assets are designated as special items:
Cash

77,000
Special Item Proceeds of sale of capital assets

77,000

The Closing Process

Closing process for government type funds needs to accomplish the
following:
1. Close budgetary accounts
2. Close Revenues, expenditures, encumbrances, and related
other financing sources or uses to Fund Balance (Activity
Accounts)

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1. Closing the budget
The budgetary accounts (considering any budget revisions) are closed to
budgetary fund balance
Appropriations

11,700,000

Estimated Other Financing Uses

250,000

*Budgetary Fund Balance

550,000

Estimated Revenues
12,000,000
Estimated Other Financing Sources
500,000

1.1 Closing encumbrance accounts

Encumbrance accounts are closed at year end and re-established in the next
year.
December 31, 2015
Budgetary Fund Balance Reserve
for Encumbrances

500,000
Encumbrances

500,000
To close encumbrances at the end of 2015
January 1, 2016
Encumbrances

500,000
Budgetary Fund Balance -Reserve for Encumbrances

500,000
**To re-establish encumbrances at the beginning of 2016

Closing activity accounts

Activity accounts are closed to fund balance:

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Revenues

11,900,000

Other Financing Sources

223,000

Special Item: Sale of capital assets

77,000

* Fund Balance
1,200,000
Expenditures

11,000,000

Fund Balance is presented within the five categories of fund balance:

Nonspendable
Restricted
Committed
Assigned
Unassigned (General Fund residual)