ctcLink Accounting Manual | 10.20 Fund Accounting

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A fund, as defined by GASB, is a fiscal and accounting entity with a self-balancing set of accounts in which cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, are recorded and segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. 

Funds are categorized by type to indicate both the sources of the fund's financial resources and the nature of activities financed. There are three broad categories of funds used in governmental accounting.

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Governmental funds are those through which most governmental functions are accounted for. The acquisition, use, and balances of the government's expendable financial resources and related current liabilities—except those accounted for in proprietary funds—are accounted for through governmental funds (general, special revenue, capital project, debt service, and permanent funds).

10.20.20.1 General Fund

General funds are funds that are used to account for all financial resources of the state that are not required to be accounted for in some other fund.

The focus is on current year revenues (resources) used to provide services through current year expenditures. This measurement focus is called the “current financial resources” focus simply because it recognizes transactions that increase or decrease the resources available for spending during the budget year. The general fund budget is based on this model.

10.20.20.2 Special Revenue Funds

Special revenue funds are funds that are used to account for the proceeds of specific revenue sources (other than trusts for individuals, private organizations, or other governments or for major capital projects) that are restricted or committed to expenditures for specified purposes other than debt service or capital projects.

10.20.20.3 Debt Service Funds

Debt service funds are funds that are used to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest. The college system does not use specific funds dedicated to debt service.  Instead, the accumulation of resources for payment of debt service should be recorded using the Class 311.

10.20.20.4 Capital Projects Funds

Capital projects funds are funds used to account for financial resources restricted, committed or assigned for the acquisition and construction of major capital facilities (other than those financed by proprietary funds or in trust funds for individuals, private organizations, or other governments).

10.20.20.5 Permanent Funds

Permanent funds are required to be used to report resources legally restricted to the extent that only earnings (and not principal, thus making the fund a nonexpendable trust) may be used for purposes that support the reporting government's programs.

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Proprietary funds are used to account for a government's ongoing activities similar to those often found in the private sector. All assets, deferred outflows of resources, liabilities, deferred inflows of resources, net position, revenues, expenses, and transfers relating to the government's business and quasi-business activities—in which changes in net position or cost recovery are measured—are accounted for through proprietary funds (enterprise and internal service funds). Generally Accepted Accounting Principles for proprietary funds are similar to those applicable to private-sector businesses; the measurement focus is on determining operating income, financial position, and cash flows.

10.20.30.1 Internal Service Funds

Internal service funds are funds used to account for the provision of goods or services by one department or agency to other departments or agencies of the state, or to other governmental units, on a cost-reimbursement basis. Internal service funds should only be used if the state is the predominant participant in the activity.

10.20.30.2 Enterprise Funds

Enterprise funds are used to account for any activity for which a fee is charged to external users for goods or services. Activities are required to be reported as enterprise funds, in the context of the activity’s principal revenue sources, if any one of the following criteria is met:

1. The activity is financed with debt secured solely by pledge of the net revenues from fees and charges of the activity.
2. Laws or regulations require the activity’s costs of providing services, including capital costs (such as depreciation or debt service), be recovered with fees and charges, rather than with taxes or similar revenues.
3. The pricing policies of the activity establish fees and charges designed to recover its costs, including capital costs (such as depreciation or debt service).

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Fiduciary funds are used to account for assets held by a government unit in a trustee capacity or as an agent for individuals, private organizations, or other governmental units. The fiduciary fund category includes pension (and other employee benefit) trust funds, investment trust funds, private-purpose trust funds, and custodial funds. These funds are reported in separate financial statements as a Statement of Fiduciary Net Position and a Statement of Changes in Fiduciary Net Position and are displayed with the government’s financial statements.

10.20.40.1 Pension (and other employee benefit) Trust Funds

Pension trust funds are funds used to report resources required to be held in trust by the state for the members and beneficiaries of defined benefit pension plans, defined contribution pension plans, and other employee benefit plans.

10.20.40.2 Investment Trust Fund

Investment trust funds are funds that are used to report the external portion of the Local Government Investment Pool, which is reported, by the state as the sponsoring government.

10.20.40.3 Private-Purpose Trust Funds

Private-Purpose trust funds are funds that are used to report trust arrangements, other than pension and investment trusts, under which principal and income benefit individuals, private organizations, or other governments. The resources held under these arrangements are not available to support the government’s own programs.

10.20.40.4 Custodial Funds

Custodial funds are funds used to account for resources held in a purely custodial capacity for other governments, private organizations, or individuals not required to be reported in pension (and other employee benefit) trust funds, investment trust funds, or private-purpose trust funds.

Under GASB Statement 84 agency funds were replaced by custodial funds. Not all funds previously recorded as agency meet the criteria for custodial funds.

Whereas agency funds only required the presentation of assets and liabilities; custodial funds require the same reporting as the other fiduciary funds: assets, deferred inflows and outflows of resources, liabilities and net position.  Custodial funds have a measurement focus therefore require a resource flows statement.

Payroll clearing accounts are not allowed to be reported in a fiduciary fund so must be reported in either a governmental fund or as a business-type activity.

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In addition to three broad categories listed above, fund accounting has a separate classification known as the subsidiary funds (often referred to as accounts).

Subsidiary accounts are used for tracking general capital assets and general long-term obligations. Subsidiary accounts are record keeping mechanisms that provide a basis for accountability and tracking the state's general capital assets and un-matured portion of general long-term obligations and certain other long-term accrued liabilities.

Subsidiary accounts are not funds in that they do not reflect available financial resources and related liabilities. There are two account subsidiary accounts:

10.20.50.1 General Capital Assets Subsidiary Fund

The general capital assets subsidiary account accounts for capital assets in governmental funds and is used to track state-funded assets.

10.20.50.2 General Long-Term Obligations Subsidiary Fund

The general long term obligations subsidiary fund accounts for long-term liabilities financed from governmental resources.
Note: Proprietary funds and fiduciary funds account for capital assets and long-term liabilities within their specific fund.