Permanent funds account for and report resources that are restricted such that only earnings, not

principal, may be expended for the support of government programs for the benefit of a government
or its citizens. The principal must be invested in perpetuity
Governmental Accounting Standards Board (GASB) Concept Statement 1 states that the objective of
financial reporting as it relates to state and local governments is to fulfill the governments duty to be
publically accountable, and to enable users to assess that accountability.
Governmental funds, which include the general fund, apply the modified accrual method of
accounting under which revenues are recognized when they become available and measurable. An
enterprise fund is very much like a nongovernmental business enterprise and, as a result, applies
accrual basis account, recognizing revenues when earned.
Government-wide financial statements are prepared on the accrual basis. Therefore, tax revenue is
reported as taxes levied net of any expected uncollectible amounts
Acquisition of a new police car would be reported as a capital expenditure in its governmental fund
statement of revenues, expenditures, and changes in fund balances.
According to GASB 34, as amended by GASB 63, the required financial statements for fiduciary
funds are a statement of fiduciary net position and a statement of changes in fiduciary net position.
An investment trust fund is a fiduciary fund. A statement of revenues, expenditures, and changes in
net position is required for governmental funds.
MD&A for a local government is an integral component of its basic financial statements and would
not be presented with other required supplementary information. It is required to include information
on a comparative basis with the prior year, overall and individual fund financial statements, variance
analysis information, and information about long-term activities and expected events.
Special accounting rules apply in cases where art, artifacts, or antiques are donated and the
government beneficiary either does not intend to sell the item or would use any proceeds from its
sale to acquire similar items. In such a case, the government may capitalize the asset, but may also
choose not to. Depreciation is not required.
The governmental activities column of the government-wide financial statements includes all five
governmental funds (Roger Mnemonic: PD-Consents-to-Smoking Grass) and the internal service
fund.
Fund balances on the Governmental Funds balance sheet can be nonspendable, restricted,
committed, assigned, and unassigned; they can be either a Restricted or Unrestricted component of
a governmental entity's Statement of Net Position
According to GASB 34, program revenues are resources that are generated in the process of
providing a particular service or operating a particular part of a government.
The internal service fund is an accrual-based fund (Roger Mnemonic: I-PIPE-Alot) and therefore
would record depreciation. Modified accrual funds (Roger Mnemonic: PD-Consents-to-Smoking

Grass) operate on the expenditure principle and generally ignore the GAAP principles of matching
and amortizing costs benefiting multiple periods; therefore, they do not record depreciation. Note
that while the internal service fund is a proprietary and not a governmental fund, it is included in
Governmental Activities on the government-wide Statement of Net Position.
When a purchase order is issued, Encumbrances is debited and Budgetary Fund Balance
Reserved for Encumbrances is credited for the estimated amount. When the invoice is received, that
entry is reversed and expenditures are recognized in the amount of the invoice.
GASB 33 defines derived tax revenues as result(ing) from assessments imposed on exchange
transactions, generally from earnings or consumption, such as income taxes or sales taxes. A hotel
use tax derives from an exchange transaction (use of the hotel in exchange for cash) and is
therefore a derived tax revenue.
Reciprocal interfund activity includes interfund loans and interfund services provided and used.
Nonreciprocal transfers include interfund transfers to establish a new fund and routine interfund
reimbursements.
Under the modified approach, infrastructure assets are not required to be depreciated if certain
requirements are met. Expenditures for assets that meet the requirements are expensed as
incurred. When the modified approach is used, the government will disclose information about the
condition of the assets and the cost to maintain and preserve them.
Enterprise funds are proprietary funds that use the accrual basis of accounting and the economicresources measurement focus.
A proprietary fund is, in many ways, comparable to a for-profit business enterprise. Its financial
statements consist of a statement of net position, a statement of revenues, expenses, and changes
in fund net position, and a statement of cash flows.
The characteristics that GASB concept statements indicate that the financial reports of state and
local governments should possess include understandability, reliability, relevance, timeliness,
consistency, and comparability.
According the GASB concept statements, the objectives of financial reporting of state and local
governmental entities is to fulfill the governments duty to be publicly accountable, to assist users in
evaluating the operating results of the entity for the year, and to assist users in assessing the
governmental entitys ability to meet its obligations as they come due.
The general fund will report transfers to other funds as other financing uses, a form of expenditure,
under the modified accrual basis of accounting.
Routine employer contributions from the general fund to a pension trust fund represent a quasiexternal transaction and would therefore be reported as expenditures.

Property tax revenue: The amount that will be recognized as revenues will include the original
amount net of uncollectible accounts. When collections exceeded expectations, the difference
reduced the allowance for doubtful accounts and increased revenues
Interfund operating transfers are not treated as revenue but as other financing sources, in
accordance with GASB 34.
Opening an order would necessitate a debit to Encumbrances and a credit to Reserved for
Encumbrances. Later, when the asset is received, these entries will be reversed and an additional
entry will be made involving a debit to Expenditures and a credit to whichever governmental assets
(Cash, Vouchers Payable, etc.) are used to pay for the new asset.
Revenues include funds that are derived from taxes, assessments, fines, and activities of the
governmental unit. Funds received from the proceeds of bond issues and operating transfers to
other funds are considered other financing sources and are not considered revenue.
Because a governmental fund uses the modified accrual basis, bond interest will not be accrued but
merely recorded as an expenditure when paid.
governmental accounting principles indicate that interest received by an enterprise fund on
investments is treated as a cash inflow from investing activities.
Enterprise funds account for government entities which are partially or wholly supported by voluntary
payments, which often take the form of user fees. Operating revenues are reported in the Statement
of revenues, expenses, and changes in fund net assets. Only a proprietary fund such as an
enterprise fund reports operating revenue.
GASB 34 specifically identifies the provision of operational accountability information for the
government as a whole as a primary purpose of government-wide financial statements.
Property taxes and fines are imposed non-exchange revenues because they are assessed and not
derived from transactions.
A transfer to a debt service fund is an operating transfer because it is a movement of resources from
one fund to another in order to finance the current period activities of the recipient fund. Such
transfers are reported as Other Financing Sources (Uses) in the governmental fund statement of
revenues, expenditures, and changes in fund balances.
The Governmental Accounting Standards Board requires that proprietary funds such as an
enterprise fund prepare cash flow statements using the direct method, in keeping with the principles
of governmental financial transparency and accountability.
A debt service fund is used to make principal and interest payments on the tax supported debts of
the government and collect funds for that purpose. Funds accumulated for both principal and interest
are accounted for in the debt service fund. Related items that may be accounted for in the general
fund include transfers made to the debt service fund for the payment of principal or interest.

The use of the term expenditure rather than expense indicates the fund making the contribution is
a modified accrual fund. Modified accrual funds report costs in accordance with the expenditure
principle, meaning outflows are simply recorded in full upon occurrence and neither accrued nor
matched (capitalized and amortized) with corresponding benefits. Thus, the actual outflow will be
recorded as the pension expenditure.
A general fund is a modified accrual fund, which operates under the expenditure principle and
utilizes encumbrance accounting. Therefore, funds are rendered unavailable when they are
encumbered and also when they are expended in the form of a cash outflow. Furthermore, because
encumbrances are canceled out to zero once the encumbered funds are expended in the form of a
cash outflow, we know that the encumbrance account and the voucher payable are related. Since
those funds are encumbered but not yet actually spent as cash, encumbrance would count against
the countys available funds, not the voucher payable. The expenditures, of course, have already
occurred as cash outflows. The total left available to the county, then, is approproations encumbrances - expenditures.
A governmental fund financial statement is prepared on the modified accrual basis and therefore
utilizes the expenditure principle, which requires that virtually all outflows be recorded as
expenditures. The GAAP principles of matching and amortizing costs do not apply. Therefore, all the
costs given are reported as expenditures
budget will be recorded with a debit to estimated revenues control for $100,000, a credit to
appropriations control for $80,000 and a credit to the budgetary fund balance for $20,000.
When establishing the fund system for a governmental unit, the absolute minimum number of funds
will be one, the general fund. Legal requirements and sound financial administration will dictate
whether additional funds are required, which will be kept at a minimum to avoid unnecessary
complexity but will be sufficient to enable proper management and oversight.
GASB 37 requires that proceeds of government-issued bonds, including bond premiums, be
reported as other financing sources in governmental funds.
Derived tax revenues, such as sales tax, collectible within 60 days are accrued under the modified
accrual basis of accounting
The three standard sections of a governmental comprehensive annual financial report are
Introductory, Financial and Statistical.
Special revenue funds are used to account for revenues that are restricted or committed to be used
to finance designated activities other than capital projects or debt service. This would include
gasoline taxes that are designated to be used to finance road repairs.
The journal entry to record the budget will consist of a debit to estimated revenues, a credit to
appropriations, and a credit to the budgetary fund balance unreserved

If have no administrative or direct financial involvement in the construction of the capital assets, but
will rather be acting as an agent for other entities by distributing the funds, the cash should be
recorded in an agency fund.
If the fees charged by an activity are intended to recover its costs, the activity should be classified as
an enterprise fund activity. Activities are required to be reported as enterprise fund activities if they
meet one or more of the following criteria:The activity is financed with debt that is secured solely by
a pledge of the net revenue from fees and charges. Laws and regulations require that the cost of
providing services be recovered through fees.The pricing policies of the activity establish fees and
charges designed to recover its costs.