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GASB STATEMENT NO 54, FUND BALANCE REPORTING AND GOVERNMENTAL FUND TYPE DEFINITIONS

In this aspect, it is important to consider the fact that government accounting holds tantamount value for numerous different reasons. Elected officials should be educated to the fact that accountability may be achieved effectively and efficiently by judicious use of department, program and other available account coding or cautious use of managerial (internal) funds. With the effective date of this standard being what it is, we still have time to analyze, learn, and plan for implementation. Additionally, we expect specific guidance to be forthcoming from the GASB, GFOA, and MGFOA to help with implementing this standard. The GASB expects to issue an implementation guide including this standard in 2019. For now, we can focus on educating ourselves on the standard and starting to analyze how it might affect each of our unique situations.

  1. For more information on determining if a transaction is fiduciary please see the Determining Fiduciary Custodial Activities page.
  2. Interfund transfers, proceeds of general long-term debt issues and material proceeds of capital asset disposition should be classified separately from fund revenues and expenditures.
  3. Both criteria must be met in the same element (assets, liabilities, etc.) for a fund to be defined as major.

In addition to the trust criteria requirements above, all individual investment accounts are required to be reported in an Investment Trust Fund. The general fund of a blended component unit should be reported as a special revenue fund. Permanent governmental accounting fund types funds include government funds that government uses to generate money. They utilize these funds to receive pay entities through qualification or agreement. Usually, these funds consist of principal amounts, which are permanent.

Government Funds: Definition, Types, Accounting

Debt service funds refer to government funds that government holds to settle debts collected from various sources. Essentially, governments create these funds intending to repay long-term debts when the repayment arises. This basis results in no reported assets other than cash and investments and no reported liabilities.

By segregating resources into multiple funds, a government can more closely monitor resource usage, thereby minimizing the risk of overspending or of spending in areas not authorized by a government budget. This article serves as an introduction to fund accounting for entities reporting under the Governmental Accounting Standards Board (GASB). Government reporting entities whose portfolio consists of leases that fall in scope for GASB 87 reporting will be required to recognize a lease asset and liability if they are the lessee, or a receivable and corresponding deferred inflow of resources as a lessor. If capturing the activity within the governmental fund, a conversion entry will be necessary at year-end to convert from the modified accrual accounting to the required full accrual for the government-wide financials.

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An exception to the disaggregation requirement is for resources normally held for three months or less (such as property taxes). Those can be shown in two lines as collected for and distributed to other governments. Revenue sources that would typically be looked to for replenishment of a fund balance include nonrecurring revenues, budget surpluses, and excess resources in other funds (if legally permissible and there is a defensible rationale). Year-end surpluses are an appropriate source for replenishing fund balance. Government funds are the main source of revenue for any particular government. Similar to any business that operates, governments also establish set accounts in order to achieve certain aims and targets.

What are the types of Government Funds?

A good indicator of the activity’s significance may be comparing pledged revenues or fees and charges to total revenue. For example, consider a county auditor’s office that charges fees to provide a payroll service to various taxing districts. Even if the fee is meant to cover the cost of the service, the county auditor function as a whole is primarily supported with tax dollars from the general fund. It would be allowable in this case to leave the activity all within general fund. With the advent of GASB 87, governmental reporting entities are now required to capitalize all leases falling under the guidance as finance leases and recognize both a lease liability and a right-to-use lease asset. Fund accounting is a system of accounting used primarily by nonprofit and governmental entities.

As can be observed above, the various fund types not only differ in their practical use but also in terms of the basis of accounting applied to recognize revenue and expenditures. The governmental funds use a modified accrual basis which can be understood as a hybrid of cash and full accrual accounting. When it comes to revenues under modified accrual for governmental funds, they are recognized when reasonably available, measurable, and collectible in the current period or soon after that; more akin to cash basis accounting. Whereas expenditures are recognized when a liability is incurred which follows along the line of full accrual accounting with certain exceptions. On the other hand, fiduciary and proprietary funds both use the full accrual basis similar to commercial entities. Financial statements for governmental funds should be presented using the current financial resources measurement focus and the modified accrual basis of accounting.

This reduces the number of funds presented on the face of the financial statement and directs the focus to the significant funds of the reporting entity. Major fund reporting is applied only to governmental funds (i.e., general, special revenue, debt service, capital project, and permanent funds) and enterprise funds. Internal service funds are excluded from the major fund reporting requirements. Fiduciary fund information is presented by type of fund rather than by major funds.

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Basis of accounting refers to when revenues and expenditures are recognized and reported in the financial statements. The purpose of each fund category, how they should be presented in governmental financial statements, as well as the basis of accounting to be used, are all clearly defined within GASB statement 34. Proprietary fund revenues should be reported by major sources, and expenses should be classified in essentially the same manner as those of similar business organizations, functions, or activities. In addition, GAAP mandate the use of enterprise funds for the separately issued financial statement of public-entity risk pools.

GASB 84 also has criteria about when liabilities are supposed to be recognized, which is when an event occurs that compels the government to pay, such as an accounts payable or accrued liability. Amounts previously shown as liabilities in Agency funds as owed to individuals or outside entities will now be shown as part of net position in the Custodial funds. An exception to this is taxes collected for other governments; those will be shown as liabilities just as they have been in the past. It is essential that governments maintain adequate levels of fund balance to mitigate current and future risks (e.g., revenue shortfalls and unanticipated expenditures) and to ensure stable tax rates.

Committed revenues are resources with limitations imposed by the highest level of the government, and where the limitations can be removed only by a similar action of the same governing body. Revenues do not include other financing sources (long-term debt, transfers, etc.). Restricted revenues are resources externally restricted by creditors, grantors, contributors or laws or regulations of other governments or restricted https://accounting-services.net/ by law through constitutional provisions or enabling legislation. The accrual basis of accounting is adjusted when dealing with governmental funds. The sum total of these adjustments is referred to as the modified accrual basis. Under the modified basis of accounting, revenue and governmental fund resources (such as the proceeds from a debt issuance) are recognized when they become susceptible to accrual.

Governments should establish and maintain those funds required by law and sound financial administration. Only the minimum number of funds consistent with legal and operating requirements should be established. Using numerous funds results in inflexibility, undue complexity, and inefficient financial administration. The effect of these and other differences on the amounts reported as GAAP fund balance and budgetary fund balance in the general fund should be clarified, understood, and documented.

The government as a whole also holds accountability for how every institution uses those funds. If you are acting as administrator for someone else’s pension/OPEB plans, the plans still must meet the criteria above to be reported in a trust fund. Interest earned on investments may be recognized at cost, amortized cost or fair value in accordance with the government’s disclosed accounting policy.

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