CHAPTER THREE

The General Fund

Introduction
Every state and local government must have a general fund that is used to account for all
financial resources, except for those resources that must be accounted for in a different
fund. A government maintain only one general fund. This unit will discuss: The nature
and purpose of the general and special revenue funds; Revenues and expenditures
recognitions; and Examples of common journal entries.

3.1 The General Fund

3.1.1 Nature and Purpose
Every governmental unit must establish a General Fund. The General Fund is used to
account for most of the current operating revenues and expenditures of the unit including
certain capital outlays and certain debt service expenditures. All tax revenues and other
receipts and expenditures not specified by law or contractual agreement to another fund
type are accounted for in the General Fund. This includes revenues and expenditures for
federal programs. The General Fund is usually the largest and most important of the
funds maintained by governmental units.
The General Fund typically has a greater number and variety of revenue sources than
other funds and its resources finance a wide range of governmental activities. The
General Fund is established at the inception of the governmental units and continues to
exist throughout the life of the governmental system.

3.1.2 Number of Funds

The governmental units will report only one General Fund; however, for practical
purposes they may find it convenient to maintain separate and distinct components of the
General Fund.

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 3.1.3 Basis of Accounting and Measurement Focus
The focus of General Fund accounting is sources and uses of “available spendable
resources” rather than upon net income determination. The General Fund uses the
modified accrual basis of accounting. Therefore, revenues are recognized when they are
both measurable and available. This fund also uses the flow of current financial
resources measurement focus.
The General Fund contains only “current” assets and “current” liabilities. “Current,”
meaning the asset is expected to be received or the liability paid within one year from the
Balance Sheet date. General Fund assets and liabilities having a life greater than one year
are reported on the Government wide statements.
Claims against the governmental unit should be recognized as General Fund liabilities
when the claims are scheduled or applicable for liquidation with existing resources.
The General Fund has many sources of revenue and many types of expenditures, and
hence, a need for numerous general ledger accounts. Excessive general ledger accounts
are very inconvenient to work with. The local and state governmental unit may,
therefore, use general ledger control accounts and subsidiary ledgers.

3.1.4 Accounts and Transactions

A. Revenues and Other Sources of Financing
Revenues represent increases in current financial resources. Proceeds from issuance of
long-term debt and receipt of inter fund transfers are not classified as revenue. Instead,
these items are classified as “other sources of financing.” General Fund revenues are
susceptible to accrual when they are both measurable and available. Revenues are
measurable when they can be reasonably estimated. In order to be available, revenues are
estimated to be collected during the current budgetary period or after the end of the
period, but in time to pay liabilities outstanding at the close of the budgetary period.
When amounts are both determined to be measurable and available, we classify them as
“revenue accruals.” Do not record the item as revenue in the General Fund if the
“measurable” and “available” conditions are not met. Many general fund revenues are
measurable, such as taxes, grants and fees.

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Classification of Revenues
The primary classification of government revenues is by fund. Within specific revenues
may be classified by sources. Generally, there are seven sources. These are explained
under:
i. Tax revenues
Tax revenues constitute the large portion of governmental revenues and are compulsory
or obligatory. In general, tax revenues may be classified in to three categories. These are
direct taxes (personal income tax, business income tax, tax on dividend, rental income tax
and miscellaneous income taxes), indirect taxes (turn over tax, value added tax, excise
tax) and taxes on foreign trade (custom duty on imported goods and services, etc).

ii. Licenses and permits

They include those revenues collected by the governmental unit from individuals or
business concerns for various rights or privileges granted to them, such as business
license, driving license, building permit, etc.

iii. Intergovernmental Revenues

They include grants, entitlements, and shared revenues. A grant is a contribution or gift
of cash or other assets from other governmental unit to be used or expended for specific
purpose, activity or facility. There are two types of grants, namely capital grants and
operating grants. Capital grants are restricted by the grantor for the acquisition or
construction of fixed assets. All other grants are considered operating grants.

iv. Charges for services

They include revenues collected by the government from the public for the services
rendered to them. These include revenue from courts, receipts from parking lots, library
use fees, tuition fees etc. Library use fees do not include fines.

v. Fines and forfeits

Forfeiture is the automatic loss of cash or other properties as a punishment for not
complying with legal provisions and as compensation form the resulting damages, or

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losses. Fines and forfeits include; Fines and penalties for commissions of statutory
offences; Fines and penalties for neglect of office duties; Library fines; Forfeitures of
amounts held as a security against loss or damages and Penalty of any sort. Penalties
levied on delinquent taxes (past due taxes) are not considered as fines, rather are
considered as tax revenues.

vi. Miscellaneous revenues

They include all revenues other than the above six categories of revenues, such as:
Interest earnings on temporary investments; Rent and royalties; Compensation for loss of
fixed assets; Contributions from public enterprises; Contributions from private sources;
Contributions from donors, and others.

Budgetary Accounts
Budgetary accounts are those accounts that affect budgetary operations and conditions.
Budgetary accounts include:
- Estimated Revenue- It is used to record total amount of revenue expected to be
recognized (from revenue budget).
- Appropriations- which are used to record budgeted expenditures.
- Encumbrances - which are used to record estimated amount of purchase orders
or contracts.
- Estimated other financing sources- are used to record estimated other financing
sources.
- Estimated other financing uses- which are used to record estimated other
financing uses.
-
In order to facilitate the preparation of financial statement that show budget and actual
amounts, the accounting systems of funds which budgets are required by law should
incorporate budgetary account.

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Journal Entries to record the various items:

1) Recording the Budget: Budgetary entry:

Estimated Revenues xxx
Estimated Other Financing Sources xxx
Appropriation xxx
Estimated Other Financing Uses xxx
Fund Balance xxx

Example 1: Assume that a given governmental unit has made the following budget
estimate for its general fund:
Estimated Revenues: Appropriations:
Taxes 780,000
Licenses and permits 256,000 Estimated Other Financing Sources:
Charges for services 184,000 Transfer from other funds 115,000
Bond issue proceed 115,000
Health and Welfare 270,000
General Government 590,000
Public safety 440,000

Required: Prepare a budgetary entry.

Estimated Revenue 1,220,000

Estimated Other Financing Sources 230,000
Appropriations 1,300,000
Fund Balance 150,000

Note that budgetary surplus is said to exist when budgeted sources exceed budgeted uses.
On the other hand, budgetary deficit is said to exist if budgeted uses exceed budgeted
sources.
2. Property Taxes and Uncollectible
Taxes are a forced contribution on the citizens by the government. There are a number of
different kinds of taxes possible, including property taxes
Property Taxes should be recorded in the fiscal year, in which they are levied, assuming
that they are also classified as available. Giving a formal notice of a tax to be paid is
called a levy.

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The governmental unit should disclose the assessment date, levy date, due dates and
collection dates of taxes. Additionally, they must disclose their policy for recognizing
property taxes.
State and local governmental units usually do not collect the entire tax levy.
Accordingly, the amount recorded as revenue receivable from taxes often needs to be
offset by an allowance for uncollectible taxes account. Governmental accounting does
not recognize a “bad debt expense,” for these uncollectible, as does private business
accounting. Instead, an allowance for uncollectible taxes account is established in the
General Fund by reducing the amount of revenue recognized from taxes.

Example 2: Property taxes of Br. 20,000,000 are levied. Five percent of the levy is
estimated to be uncollectible. The following entry would be made to record the levy:
Property Taxes Receivable-Current 20,000,000
Revenue—Current (Real Estate Taxes) 19,000,000
Allowance for Uncollectible Taxes-Current 1,000,000
Example 3: Assume thatBr.16, 000,000 of the tax receivables are collected and Br.750,
000 of the receivables is now deemed uncollectible: the following entry is made to record
the collection:
(a) Cash 16,000,000
Property Taxes Receivable-Current 16,000,000
(b) Allowance for Uncollectible Taxes 750,000
Property Taxes Receivable-Current 750,000
Example 4: Assume that the remaining receivable balance is considered delinquent; the
journal entry used to record is as follow:
(a) Property Taxes Receivable-Delinquent 3,250,000
Property Taxes Receivable -Current 3,250,000
(b) Allowance for Uncollectible Taxes-Current 250,000
Allowance for Uncollectible-Delinquent 250,000

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Change in Estimate
A change in estimate does not require that you restate prior financial statements. Only
adjusting entries to the current year are required. Include an appropriate disclosure
concerning the change in estimate in the financial statements if the effects of the change
in estimate are material.
- A particular governmental unit may discover at the end of the accounting period
that the allowance for uncollectible accounts for the current period was overstated
or understated. To record the revised estimate, adjust the allowance and revenue
accounts.
- An estimated uncollectible rate could be incorrect for several years, resulting in
consistently overstating or understating uncollectible amounts.
Example 5: The uncollectible account should have been six percent, instead of five
percent in Example 2. The entry to record the revision at the end of the year would be:
Revenue – Current –Property Taxes 200,000
Allowance for Uncollectible Taxes 200,000
(Br. 20,000,000 x 6% = Br. 1,200,000; Br. 1,200,000 – Br. 1,000,000 = Br. 200,000)

Delinquent Property Taxes

Taxes not paid by the due date on the bill are delinquent. The amount of taxes remaining
in “taxes receivable – current year” should be transferred to “taxes receivable –
delinquent.” If you maintain separate “allowance for uncollectible taxes” by year, then
this account should also be transferred from a current account, to a delinquent account.
Delinquent taxes are usually subject to penalties and interest charges. The cash collection
of interest and penalties is similar to the collection of the property taxes.
Example 7: To record the receipt of interest and penalties:
Cash XXX
Interest and Penalties Receivable – Delinquent Taxes XXX

2) Tax Anticipation Notes Payable

Notes (or warrants) issued in anticipation of the collection of taxes, usually retirable only
from tax collections, and frequently only from the proceeds of the tax levy whose
collection they anticipate.

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Taxes anticipation notes payable is issued by the governmental unit when expenditures
are expected to be made before major items of revenues are received. The unit borrows in
the anticipation of the collection of taxes in later months and use for the payment of
notes. The transaction is recorded as follows:
Cash xxx
Tax Anticipation Notes Payable xxx
The repayment of the note, with interest, is recorded as follows:
Tax Anticipation Notes Payable xxx
Expenditures (Interest) xxx
Cash xxx

3) Taxpayer-Assessed Revenues & Income Taxes

In the past, accounting standards required that these revenues be recognized on a cash
basis, although many governmental units chose to record these revenues when they were
measurable and available. The Governmental Accounting Standards Board (GASB)
Statement No. 22 put an end to this discrepancy between theory and practice by stating
that these taxes must be accounted for using modified accrual accounting. Therefore,
these amounts must meet the definitions of measurable and available in order to be
recognized as revenue. Taxes should be reported net of anticipated refunds to taxpayers.
The Journal entry to record other taxes:

a) If Business income tax is collected:

Cash xxx
Revenue –B.I.Tax xxx
Note: For all other taxes, when collected, record the entry like the above.

Other Revenues:
For Special assessments, Licenses & Permits, Charges for services, Fines & Forfeits,
Miscellaneous revenues, the journal entry is as follows:
Cash xxx
Revenue – Name xxx

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Grant means a contribution received from another government, which is to be used or
expended for a specific purpose or activity.
Entitlement is the amount of payment a local government receives from another
government as determined by a formula established by law. For example, Basic
Education, Special Education, Transportation.
Before revenue can be recognized, you must evaluate the circumstances surrounding the
grant or entitlement to determine if the measurable and available criteria have been met.
a) State Subsidies
Recognize current fiscal year state subsidies as current revenue, even though the funds
will be received in the subsequent fiscal year.
Example 8: Assume that Br. 50,000 of the current year transportation subsidy was not
received as of the end of the budget period.

State Subsidies Receivable – Transportation 50,000

Revenue – Transportation 50,000
4) Donations
Financial donations are usually recorded on the cash basis because they are not
considered measurable until they are received.
The proper treatment of donated fixed assets depends on the governmental unit’s plans
for those assets. If the unit intends to retain the fixed assets, they are recorded directly in
the government wide statement of net assets, with no effect on the governmental funds.
If, however, the unit intends to sell the donated fixed assets, that unit should record the
transaction in one of three ways:
i. If the assets are sold by the end of the fiscal year, report revenue in the operating
statement.
ii. If the assets are sold after the end of the budget year, but before the financial
statements are issued, report the fixed assets on the fund’s balance sheet as “assets
held for resale” and report revenue on the operating statement.
iii. If the assets were not sold before the issuance of the financial statements, the assets
should be reported only in the statement of net assets. When they are sold, the unit
would report the sale.

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Donations are valued at the Fair Market Value of the item at the time of the donation.
Example 9: Assume that a particular governmental unit receives a cash gift of Br. 1,000
from a private benefactor to be used at the discretion of the higher officials for general
operations.
Cash 1,000
Revenue - Contributions and Donations 1,000
(To record receipt of revenue from a donation)
Example 10: Assume that a particular governmental unit receives a gift of land from a
donor. An independent appraiser values the land at Br. 50,000 on the current market.
The land received as donation is sold for 50,000. The entry to record the above
transaction is:
a) Land Br. 50,000
Revenue - donations Br. 50,000
(To record donated land as revenue)
b) Cash 50,000
Land 50,000
(To record the sale of land)

5) Proceeds From Issuance of Long-Term Debt

When long-term debt is issued and the proceeds are available to the General Fund, you
should record the proceeds as part of “other financing sources.” These proceeds are
reported in the General Fund on the Statement of Revenues and Expenditures, under
the “Other Financing Sources” section of the statement. These proceeds should not be
reported under the General Fund’s operating revenues. Although bond proceeds are
reported in the General Fund, the long-term debt is reported in the non- current liabilities
section on the statement of net assets, not in the General Fund.
If short-term debt is issued by the General Fund, i.e. debt to be paid off in one year or
less, the debt liability is recorded in the General Fund because, the payment of the debt
will require current resources.

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Example 12: Assume that $10,000,000 of long-term notes is sold and the proceeds are
available to the General Fund: the following entry should be recorded in the general fund;
GENERAL FUND:
Cash 10,000,000
Proceeds from Issuance of Long-Term Debt 10,000,000

B. Appropriations and Expenditures:

Appropriation is the authorization to make expenditure. An appropriation when enacted

by law will have authorization to incur on behalf of the governmental unit expenditures
and liabilities for goods or services.

Expense Vs Expenditure:

Expense: An expense is cost expiration or cost consumption

Ex: supplies purchased are Birr 10,000 and used supplies are 6,000. Expense of supplies
are Birr 6,000 because this amount of cost consumption.

Expenditure:
Expenditures are decreases in fund financial resources. This means when fund financial
resources are used or fund liabilities are incurred during a fiscal period, it is called
expenditure. Some examples of General Fund expenditures are current operations like
payment of salaries, Capital outlays like purchase of capital assets and payment of
interest on long-term debt. Depreciation and amortization are not expenditures within
the General Fund.

Expenditures are generally accrued when incurred if the transaction results in a

reduction of the General Fund’s current financial resources. However, expenditures
for long-term debt principal and related interest are recognized when they are due.
Expenditures are generally classified by function and object.

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By Function or Program:
General government
Public safety
Health & Welfare
Culture & Recreation
By Object:
Personal services
Other services
Supplies
Capital Outlays

The Journal Entries to record Expenditure:

1. When expenditure is paid
Expenditure Account XXX
Cash XXX
OR
b) Expenditure xxx
Voucher Payable xxx
c) Voucher Payable xxx
Cash xxx
2. When expenditure is due:
Expenditure xxx
Accrued Expenditure xxx
Examples of expenditure items that can be accrued:
1) Salaries and Benefits
Example 1: Assume that there are total salaries and benefits of Br.425,000 paid for the
month of June, 2006
Expenditures – Salaries and Benefits 425,000
Cash 425,000
Example 2: Assume that there are total salaries and benefits of Br.425,000 approved
but not paid for month of June, 2006

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Expenditures – Salaries and Benefits 425,000
Voucher Payable 425,000
Example 3: Interest on short term debt 3,000 incurred but not paid:
Expenditures –Interest 3,000
Interest Payable 3,000
2. Accounting Treatment for Deferred Expenditure: (Insurance Premium, Rent
etc)
Insurance Premium
Example 4: Annual insurance premium of Br.12, 000 paid on SENE 1, 2001.
(a) Expenditures 12,000
Cash 12,000
(To record payment of premium)

(b) Prepaid Insurance 11,000*

Expenditure 11,000 (12,000*11/12)
(To record the amount paid in advance as of SENE 30, 2001)

3. Capital Outlays
The General Fund may purchase capital assets, such as land, buildings, and equipment.
The general entries for these transactions are:
GENERAL FUND: Expenditures – Capital Outlay XXX
Cash XXX
The asset obtained is accounted for in the government wide statement of net assets.
Example 6: Equipment worth 250,000 is purchased from General Fund:
Expenditures –Equipment 250,000
Cash 250,000

4. Debt Service Payments

Debt service payments made from the debt service fund should be recorded in the
debt service fund. Debt service transactions are described in detail in the chapter debt
service fund of this module.

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A state and local governmental unit can appropriate and make certain debt payments
from their general fund. Debt service payments made from the general fund are recorded
in the general fund, not the debt service fund.
Principal and interest payments are recorded when principal and interest payments
become due and payable.
Example 7: Assume that Br.1, 000,000 of 6% bonds are issued on April 1, 2XX1 and
pay interest semiannually beginning on October 1, 2XX1. A condition of this specific
bond is to be maintained within the general fund. The entry on October1, 2XX1 in the
general fund would be:
Expenditures – Interest 30,000*
Cash 30,000
(To record semi-annual interest payment *1,000,000*6%/2)
Example 6: Assume there is no requirement to maintain the bond within the general
fund. Funds for the interest payment are transferred from the general fund to the debt
service fund:
GENERAL FUND
Transfer to Debt Service Fund 30,000
Cash 30,000
DEBT SERVICE FUND
(a) Cash 30,000
Transfer from General Fund 30,000
(b) Expenditures – Interest 30,000
Interest Payable 30,000

C. Other Transactions Affecting the General Fund

1) Encumbrances
Encumbrance accounts allow for the recording of legal commitments issued against the
appropriation of a fund. Legal commitments include items such as purchase orders for
goods and/or supplies and contracts with suppliers. Recording encumbrances is
essential to keeping expenditures within the approved budget. An encumbrance
reserves a part of the appropriation at the time of commitment to ensure that
resources will be available to cover the expenditure when the goods are delivered or
the services rendered to the governmental unit. It is essential for good management
and budgetary control to record expenditure commitments that will be paid later from

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fund resources. The accounting entry to record a commitment is debit Encumbrances and
credit Reserve for Encumbrances.
The encumbrance account does not represent expenditure for the period, only a
commitment to expend resources. Likewise, the account reserve for encumbrances is not
synonymous with a liability account since the liability is recognized only when goods are
received or the services are actually performed.
Example 1: Assume that a purchase order is written for Br.20, 000 on TIKIMIT 20,
2002.
- Later, on HIDAR 10, 2002, the actual invoice is received with the delivery in the
amount of Br.18, 250. The entry to record this transaction is:

TIKIMIT 20, 2002: Encumbrance 20,000

Reserve for Encumbrances 20,000
(To record issuance of the purchase order)
HIDAR 10, 2002: Reserve for Encumbrances Br.20, 000
Expenditure Br.18, 250
Encumbrances Br.20, 000
Vouchers Payable Br.18, 250
(To record acquisition of the goods order and to offset the encumbrance accounts using
combined entries)
If this should happen, the available balance at the end of the initial accounting period
would be overstated.
Expenditures and the liability account must both be recorded in the actual amount due to
the supplier. The fact that estimated and actual amounts differ causes no accounting
difficulties as long as goods or services are received in the same fiscal period.

Year-End Treatment of Encumbrances

At the end of the fiscal year, all remaining encumbrances are considered reservation of
fund balance not liabilities. They will become a liability when the goods and / or services
are received in the following fiscal year. The budgetary estimate should include an

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estimated Reservation of Fund Balance as part of the funds available in the following
fiscal year.

2) Fund Balance
The difference between governmental fund assets and liabilities is referred to as the fund
balance. Therefore, the fund balance, for a particular governmental unit, is the difference
between total assets and total liabilities as shown on the Balance Sheet or the Statement
of Revenues, Expenditures, and Changes in Fund Balance in the Annual Financial
Report.
3) Inter fund Activity
Transactions may occur between funds. These inter fund transactions are classified as
revenue, expenditure or expense within the individual funds, but not to the
governmental units overall. Inter fund transactions are divided into three categories.
These categories are
(a) Quasi-external transactions,
(b) Reimbursements
(c) Loans.
(a) Quasi-External Transactions
Those transactions that would have been recorded as revenues, expenditures or
expenses had they involved external organizations. The quasi-external transaction
suggests the existence of a buyer-seller relationship. For example, charges for utilities
or data processing provided by one fund to another fund.
These transactions should be accounted for as revenues and expenditures (or expenses) in
the funds involved. Since each fund is an accounting entity, the amounts due to one fund
from other funds, as well as the amounts owed to other funds, should be reflected in the
fund accounts as ‘due to ‘and ‘due from’ other funds transactions.
Due to Other Fund is a liability account that reflects amounts owed to another fund for
goods sold or services rendered. These amounts include only short-term obligations on
open accounts, not inter fund loans.

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Due from Other Funds is an asset account used to indicate amounts owed to a particular
fund by another fund for goods sold or services rendered. This account also include only
short-term obligations on open accounts, not inter fund loans.
Example 2: Internal Service Fund Billings: Assume that in a particular governmental
unit the printing center gives a printing service costing Br.5, 000 to the general-type
activities; the journal entry is:
General Fund: Expenditure – Printing Service 5,000
Due to Internal Service Fund 5,000

Internal Service Fund:

Due from General Fund 5,000
Revenues - Printing Service 5,000
Example 3: The Enterprise Fund bills the General Fund Br. 6,000 for services rendered,
the quasi-external transactions would be recorded as follows:
General Fund: Expenditures 6,000
Due to Enterprise Fund 6,000
Enterprise Fund: Due from General Fund 6,000
Revenues 6,000
(b) Reimbursements
A reimbursement is a repayment of expenditure or expense initially made in one fund,
but properly accounted for in another fund. One fund (the reimbursed fund) pays the
expenditures or expenses of another fund (the reimbursing fund) with the understanding
that the reimbursing fund will pay the reimbursed fund at a later date. Do not confuse
these transactions with loans, advances or inter fund transfers. The proper accounting for
reimbursements is to record an expenditure or expense in the reimbursing fund, and a
reduction of expenditure or expense in the reimbursed fund.
1. When the General Fund is the Reimbursed Fund
Record the initial payment of the expenditure or expense as expenditure in the General
Fund. No entry is made in the reimbursing fund. When the reimbursing fund reimburses
the General Fund, the General Fund reduces its expenditures by the amount received.
The reimbursing fund then recognizes the expenditure or expense.

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Example 4: The general fund pays a utility bill of Br.20, 000 for the cafeteria fund. The
initial payment is recorded in the general fund as:
(a) Expenditures – Utilities 20,000
Cash 20,000
When the cafeteria fund reimburses the general fund, the general fund reverses its
original entry:
(b) Cash 20,000
Expenditures – Utilities 20,000

2. When the General Fund is the Reimbursing Fund

When the general fund is the reimbursing fund, this initial payment made by the other
fund (reimbursed fund) is not recorded in the general fund. When the general fund
reimburses the other fund, the expenditure is recorded in the general fund.
Example 5: The cafeteria fund made a Br.20, 000 utility bill payments on behalf of the
general fund. When the General Fund reimburses the cafeteria fund, the following entry
would be made in the General Fund:
Expenditures – Utilities 20,000
Cash 20,000
(c) Inter fund Loans
Inter fund loans are made from one fund to another. The fund that made t
he loan expects to be repaid. Loans may be short-term or long- term. Inter fund loan
amounts are reported as gross. You should not net inter fund loan amounts. Loans
between funds are treated as balance sheet transactions. The borrowing fund reports a
liability and an increase in cash. The lending fund reports a receivable and a decrease in
cash.

i. Short Term Loans and the Short Term Portion of Long Term Loans
Short-term loans and the short-term portions of long-term loans are expected to be repaid
within twelve months. “Due To” and “Due From” accounts are used for short-term loans.
The total of governmental unit’s “Due To Other Funds” account should equal the total of
the “Due From Other Funds” account. The journal entries to record a short-term inter
fund loan of Br.1, 000 would be:

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General Fund: Due From Fund B 1,000
Cash 1,000
Fund B: Cash 1,000
Due to General Fund 1,000
(To record an inter fund loan to Fund B)

Closing Entries for General Fund:

To close Budgetary ledger accounts
Appropriations xxx
Estimated other financial uses xxx
Budgetary Fund Balance xxx
Estimated Revenues xxx
Estimated other financial sources xxx
To close Encumbrances:
Unreserved Fund Balance xxx
Encumbrances xxx
To close Revenues, Other Financial Sources, Expenditure, and Other Financial
Uses:
Revenues xxx
Other Financial Sources xxx
Expenditures xxx
Other Financial Uses xxx
Unreserved Fund Balance xxx

3.2 Special Revenue Funds

The purpose of a special revenue fund is to account for the proceeds of revenue sources
that are legally restricted for specific purposes. Special Revenue Funds differ from
enterprise funds in that the services delivered by a Special Revenue Fund are not financed
by user charges. NCGA Statement 1 states that special revenue funds should be used
only when legally mandated. Additionally, if resources are used to support expenditures
made from the General Fund, these resources should be accounted for in the General
fund. This task will discuss: the nature and purpose of Special Revenue Funds; and how

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Special Revenue Funds are established.

3.2.1. Nature and Purpose

Special Revenue Funds are used to account for financial resources, which are restricted to
expenditures for specified purposes.

3.2.2. Basis of Accounting and Measurement Focus

As a governmental fund type, the focus of Special Revenue Fund accounting is on
sources and uses of “available expendable resources” rather than upon net income
determination. Special Revenue Funds are accounted for on a modified accrual basis of
accounting as defined in this unit.
The Special Revenue Fund contains only current assets and current liabilities. Current
meaning the asset is expected to be received or the liability paid within one year from the
Balance Sheet date. Liabilities should be recognized as fund liabilities when the claims
are scheduled or applicable for liquidation with existing resources.
Note: Accounting for Special Revenue Funds is similar to that of the General fund.

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