Fund Accounting Basics

Concept

Why Fund Accounting?

Governments use fund accounting to track resources restricted for specific purposes. Unlike businesses that report as a single entity, governments maintain separate funds — each is a self-balancing set of accounts. The accounting equation changes to: Assets = Liabilities + Fund Balance (not stockholders equity).

Example

Types of Funds

Governmental Funds (5 types): • General Fund — main operating fund for unrestricted resources • Special Revenue — restricted for specific purposes (e.g., road maintenance) • Capital Projects — major construction projects • Debt Service — repaying long-term debt • Permanent — principal is restricted, only earnings can be spent Proprietary Funds: Enterprise (like a business) and Internal Service Fiduciary Funds: Trust and agency funds held for others

Key Point

The General Fund

Every government has exactly one General Fund. It accounts for all unrestricted resources and is the most commonly tested fund on the CPA exam.

Modified Accrual Accounting

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Practice questions from this module to reinforce what you learned.

Practice Questions