The General Fund and Special Revenue Funds

Chapter 3

Learning Objectives

Discuss differences & similarities between GF and SRFs Explain MFBA used for these funds Analyze common journal entries for transactions, including interfund activity Prepare adjusting & closing entries Define special items and extraordinary items Understand fund balance reporting classifications Prepare GF and SRF financial statements
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General Fund

Used to account for and report all financial resources not accounted for and reported in another fund. Only fund that all general purpose governments have.

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Special Revenue Funds

Used to account for and report specific revenue sources that are restricted or committed to expenditure for specified purposes. Exist as long as the government has resources dedicated to specific purposes.

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MFBA

Measurement Focus (MF) is on current financial resources what is expendable Basis of Accounting (BA) is modified accrual recognition occurs for

Revenues when measurable & available Expenditures when underlying liability is incurred, except for long-term debt principal and interest payments (when due)

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Basic Accounting Equation

Financial Assets Related Liabilities

+
Deferred Outflows

+
Deferred Inflows

Fund Balance

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Assumptions for this Chapter

Transactions do not address budgetary accounting, reporting, & control issues Accounts maintained on GAAP basis during the year

Second assumption rarely holds in practice, but makes instruction easier and more uniform

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Illustrative Entries

Property tax levy Other revenues Orders and contracts Salary expenditures Interfund activity Short-term borrowing Extraordinary and special items Other transactions and events
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Property Tax Levy

Notice use of allowance account in entry

No bad debts expense remember, a governmental fund does not use expenses Records revenue at the amount government expects to collect

This form of entry assumes net amount will be available other options discussed in Chapter 5
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Other Revenues

Some revenues will be accrued when services are provided Other revenues may be recognized only when cash is received no allowance necessary since all of revenue received

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Salary Expenditures

Comprise about 75% of city General Fund expenditures and 85% of school board General Fund expenditures Effective control over these expenditures is essential

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Interfund Activity

Nonreciprocal transactions

Interfund reimbursements Interfund transfers Interfund services provided Interfund loans

Reciprocal transactions

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Interfund Reimbursements

Underlying event:

Transaction initially recorded in one fund Should have been accounted for and reported in a different fund

May also be used to distribute costs from one from to others Will not separately reported in financial statements
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Accounting requires:

Removing expenditure or expense from the accounts of fund in which it was initially recorded Recording expenditure or expense in the reimbursing fund(s)

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Interfund Transfers

Usually involve moving assets (cash or inventory) from one fund to another Do not involve requirement or expectation or subsequent repayment May also result from one fund providing services to another without charging for those services (rare)

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Common examples

GF resources transferred to DSF for principal and interest payments GF resources transferred to CPF to pay for governments portion of capital project SRF resources transferred to GF to finance expenditures for which SRF resources are restricted GF resources transferred to EF to provide initial permanent financing Residual assets of CPF or DSF transferred upon completion of purpose of fund EF resources transferred to other funds to subsidize operations

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Interfund Services

Defined as sales and purchases of goods and services between funds for a price approximating their external market value Accounting:

Seller fund sells goods or services to external party (recognizes revenues) Buyer fund purchases same goods or services from external entity (recognizes expenditures or expenses)

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Interfund Loans

One fund loans cash to another Transaction does not change Fund Balance Reporting

Lender fund recognizes a receivable Receiving fund recognizes a liability

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Interfund Loan Terminology

Lender Fund

Short-term loan Due from Long-term loan Advance to (will require separate reporting in Fund Balance) Short-term loan Due to Long-term loan Advance from

Receiving Fund

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Short-term external borrowings

Usually made with banks Receipt of loan and principal repayment do not affect Fund Balance; however, payment of interest does affect Fund Balance

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Extraordinary & Special Items

Extraordinary item

Used by FASB & GASB Event is not under control of management and is both (1) unusual in nature and (2) infrequent in occurrence Unique to GASB Event is under control of management and is either unusual or infrequent

Special Item

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Using the CPYE Account

Some wonder about using the Correction of Prior Year Error Account (CPYE) Since the previous years expenditure accounts have been closed, it cant be charged to that account The use of the Fund Balance account is an option, but doing so would hide the error Besides, remember to where the CPYE account will be closed: Fund Balance

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Year-End Adjustments

Revenue Adjustments

Interest on investments and delinquent taxes Unbilled charges for services Unrestricted intergovernmental grants that are due but havent been received Interest on short-term debt Accrued payroll

Expenditure Adjustments

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Closing Entry Process

Close the operating accounts and update Fund Balance Close subsidiary revenue and expenditure accounts

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General Fund Financial Statements

Balance Sheet Statement of Revenues, Expenditures, and Changes in Fund Balance ___ Revenues, Expenditures, and Changes in Fund Balance Budget-to-Actual

Statement of . . ., if part of the Basic Financial Statements Schedule of . . ., if placed in Required Supplementary Information (RSI)
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Balance Sheet:
Standard Report Format
Assets Liabilities

+
Deferred Outflows

+
Deferred Inflows

Fund Balance

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Fund Balance Classifications

Nonspendable Restricted Committed Assigned Unassigned

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Nonspendable Fund Balance

Represents amounts that cannot be spent:

Not in spendable form

Inventory and prepaid items Long-term receivables and loans Property acquired for sale

Legally or contractually required to be maintained intact as in the principal of a Permanent Fund

Amount in this classification should be determined before other classifications may limit reporting in other classifications
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Restricted Fund Balance

Constraints placed on the use of amounts are either: Externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments Imposed by law through constitutional provisions or enabling legislation

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Committed Fund Balance

Amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the governments highest level of decision-making authority should be reported as committed fund balance.

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Committed Fund Balance [continued]

Amounts classified as committed are not subject to legal enforceability like restricted resources; however, they cannot be used for any other purpose unless the government removes or changes the commitment by taking the same action it employed to impose the commitment.

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Committed Fund Balance [continued]

The authorization specifying the purposes for which amounts can be used should have the consent of both the legislative and executive branches of the government, if applicable.

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Assigned Fund Balance

Amounts that are intended by the government to be used for a particular purpose, but are neither restricted nor committed, should be reported as assigned fund balance.

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Assigned Fund Balance [continued]

Intent should be expressed by: the governing body itself or a subordinate high-level body or official possessing the authority to assign resources to be used for specific purposes in accordance with policy established by the governing body.

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Assigned Fund Balance [continued]

Residual category of Fund Balance for classification for any governmental fund other than the General Fund. Use in the General Fund indicates intent to use resources in manner that is narrower than general purposes of the government cannot cause a deficit in the Unassigned category.

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Unassigned Fund Balance

Residual classification of the General Fund. Positive amounts should only be reported in the General Fund Negative amounts can be reported in other funds, but only after assigned amounts have been eliminated.

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Where Classifications Are Found

General Fund Special Revenue Funds Capital Projects Funds Debt Service Funds Permanent Funds Nonspendable Must be positive Restricted Must be positive

Committed Must be positive Assigned

Must be positive

Assigned Residual Category Must be positive

Unassigned
May be positive or negative

Unassigned Used Only If Negative Assigned must be eliminated before use

In all funds, Unassigned may only be negative if Assigned is first eliminated.

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Statement of Revenues, Expenditures, & Changes in Fund Balance

May be referred to as the operating statement Format specified by the GASB (there had been optional formats prior to 1999)

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Operating Statement Format

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Classification of Expenditures

Function Organizational Unit (including Department and Subunit) Activity Object Class Character

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