The Concept of Fund Accounting
The defining feature of US state and local accounting under GASB is the mandatory use of Fund Accounting. A fund is a self-balancing set of accounts segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. Funds are treated as separate legal and accounting entities.
Classification of Fund Categories
GASB segments all government activities into three distinct comprehensive fund categories:
1. Governmental Funds
These funds account for core, tax-supported government activities. They utilize the modified accrual basis and focus on current financial resources (cash, receivables, short-term investments):
  • General Fund: Accounts for all financial resources except those required to be accounted for in another fund. It is the primary operating fund of the government.
  • Special Revenue Funds: Restricted or committed revenues legally earmarked for specific operational purposes (e.g., a dedicated gasoline tax fund for road repairs).
  • Capital Projects Funds: Financial resources used for the acquisition or construction of major long-term capital facilities (e.g., building a new city hall).
  • Debt Service Funds: Accumulation of resources for, and the payment of, general long-term debt principal and interest.
  • Permanent Funds: Resources that are legally restricted; only the earnings, not the principal, may be used to support government programs.

2. Proprietary Funds
These funds account for business-type activities where operations are financed and operated similarly to private enterprises. They utilize the full accrual basis and focus on economic resources:
  • Enterprise Funds: Services provided to the general public for a user charge (e.g., municipal water utilities, public parking garages).
  • Internal Service Funds: Services provided by one department or agency to other departments of the same government on a cost-reimbursement basis (e.g., a centralized IT support center, government vehicle pools).

3. Fiduciary Funds
These funds hold assets in a trustee or agency capacity for individuals, private organizations, or other governments. They cannot be used to support the government’s own programs, utilize the full accrual basis, and are completely omitted from government-wide financial reports:
  • Pension Trust Funds: Resources held for public employee retirement benefits.
  • Investment Trust Funds: External portions of investment pools managed by the government on behalf of other distinct legal subdivisions.
  • Private-Purpose Trust Funds: Trust arrangements where principal and income benefit specific individuals or private groups.
  • Custodial Funds: Assets held temporarily for others (e.g., a county collecting taxes on behalf of a local school district).

 
PreviousNext