CHAPTER FIVE

GENERAL AND SPECIAL REVENUE FUND

Budgetary Accounting and Expenditures
General and Special Revenue Funds are typically used to finance and account for most
government activities.
 the general fund is used for general government activities, such as police protection,
fire protection, administration and the like.
 The general fund should account for all financial resources for which is a separate fund is
not required.
 All governmental entities have a General Fund (GF), although it may be called the
operating fund, the current fund or something similar.
 The general fund will exist as long as the entity exists.
Conversely, a governmental entity may have several Special Revenue Funds (SRF) at any
time, and these funds are opened and closed according to need.
 SRFs, in contrast to the GF, are used to account for resources which are collected
for a specific purpose.
 They are established to account for general government resources that are restricted
by law or by contractual agreement to the specific purposes.
 For example, tax on diesel fuel that is required to be used only for road
maintenance, or a tax on hotel rooms to be used to improve tourist facilities –
streets around historical sites, etc.
The General fund and the special Revenue fund have different purposes, but they are similar in
that both are expendable, government and revenue funds, and the accounting and
reporting procedure is the same for both. They are very similar in that all or almost all of their
resources are expended each year. They are then filled up (replenished) again for the next year.
Recording Budget
To record the budget (how much has been made available and how much to spend in the budget
year) in the ledger,
 Two control accounts are needed - estimated revenues and appropriations.

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  Under these control accounts subsidiary ledgers are used as necessary. For example, for
Estimated Revenues, subsidiary ledgers for sales taxes, income taxes, licenses, and fines,
etc will be maintained.
 For Appropriations, subsidiary ledgers for salaries, supplies, equipment, etc, may be
needed. Subsidiary ledgers will be required for as much detail as is needed in the reports
which are produced from them.
The entry to record the budget is simple. It is normally done on the first day of the fiscal year.
Estimated Revenues is debited, Appropriations is credited, and net resource/fund Balance is
debited or credited for the difference. Assume a budget with Estimated Revenues of 500,000
Birr and Appropriations of 480,000 Birr:
Estimated Revenues 500,000
Appropriations 480,000
Net resource 20,000
This entry tells us that the governmental unit is expecting to collect 500,000 birr in the
upcoming fiscal year and of this 480,000 birr is authorized to be spent. The remain 20,000 birr
(recorded as Net resource) is kept as reserve to meet unexpected price increases that might
happen in the year.
Appropriations could be further subdivided-by month, for example. These sub divisions are
called allotments. As each month‘s allotment (480,000/12 months) was activated, the following
entry would be necessary:
Unallotted appropriations 40,000
Allotments 40,000
Encumbrance (Recording Purchase Order)
In a profit seeking entity, purchase orders (P.O.) are basically used to provide a check that the
quantity and price of the goods invoiced is the same as what was actually ordered.
Typically an outstanding purchase order file is kept, and as the goods are received, the P.O.
related to them is marked Filled. P.Os in governmental entities also have this function.
Additionally, in governmental entities, they help to keep expenditures not exceeding the
budget. P.O.s have the function of keeping track of coming expenditures so that the budget is
not exceeded. This is done by actually recording the P.O. in the ledger as an Encumbrance.

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Recording encumbrances helps the one managing the finances to know that the money has been
committed to some purpose and is no longer available for expenditure. To ensure that
outstanding purchase orders are not overlooked in the ongoing commitment of resources,
purchase orders are recorded in the ledger in an account called Encumbrances.
 Appropriation is an authorization to make expenditures.
 An encumbrance differs from expenditure in that the encumbrance is an estimate of
liability to be incurred.
 Expenditure is an actual liability which has been incurred.
 Encumbrance denotes amount stated on the purchase order, which is subject to
change.
 Expenditure is the actual amount of money a governmental unit should pay up on
delivery. This may be equal or greater/less than the encumbered amount. The reason is
that an encumbrance is only an estimate of the invoiced amounts. For example, a
particular item may be out-of-stock, and either backordered, or substituted by a similar
item.
Two Journal entries are needed for encumbrances:
1. When the order is paced, and
2. When the goods are received.
 When the order is paced, Encumbrances is debited and Reserve for Encumbrances (net
resource) is credited.
 When the order is received, the above entry is reversed and another entry to
account actual liability would be recorder: a debit to Expenditure and a credit to
Cash/ Accounts Payable.
To illustrate, office supplies of 12,000 Birr (paper 10,000, Computer printer Ink 1,000, and Bic
pens 1,000) are ordered. The entry to record the encumbrance is:
Encumbrances 12,000
Reserve for Encumbrances 12,000
One month later, the paper is received as ordered, the printer Ink was out-of stock and has been
backordered, and Luxor pens, which are slightly more expensive (1.30 each ) were
substituted for the Bics (1.25 each). The Encumbrance for the paper (10,000) and pens

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(1,000) should be reversed because it has been filled. The Encumbrance for printer ink
should remain outstanding. The reversing entry would be:
Reserve for Encumbrances 11,000
Encumbrances 11,000
At the same time expenditure account should be debited, because the actual liability is
incurred. The paper is purchased for its estimated price of 10,000. But the pen shows a slight
increment of birr 40 [($1,000/$1.25)*1.30]. Hence, actual expenditure for the pen is 1,040.
Expenditures 11,040
Accounts payable (or cash) 11,040
 Remember: in the first entry the accounts are reversed for their balances recorded when
the Purchases are ordered. In the second we used the actual price not the encumbered
balance.
Recording payroll
Encumbrances are not necessary for every single expenditure.
Expenditures that are regular and predicable, such as payroll are not typically encumbered
However, if payroll has seasonal fluctuations, then it is wise to encumber the estimated
payroll. If a payroll of 50,000 Birr was not encumbered, its payment would simply appear as the
following entry:
Expenditures birr 50,000
Cash 50,000
Accounting for Expenditures
Expenditures are operating statement accounts, as are revenues. In contrast to Revenues,
Expenditures are decreases in net resources. There are two types of decreases of financial
recourse: expenditures and other financing uses. The other financing uses are transfers to
other funds. There financing uses will be considered in the next section. Expenditures are
covered in this section. Expenditures can be further classified into Current, Capital, and Debit
service.
 The distinction between expenditures and expenses should always be kept in mind
when doing governmental accounting.
 Expenditures are a measure of fund current liabilities incurred during a period for
operations, capital outlay, or debt service. These are outlays which have no return.

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  Expenses are costs which are expired or consumed in a period. These are outlays made
for generating additional revenue to the business. In government Accounting, for
example, the acquisition of a fixed asset is expenditure, it is not an expense. Salary
payment is expenditure not an expense. Repayment of long-term debt principal is
expenditure, it is not an expense.
The Purpose of Expenditure Accounting
The purpose of expenditure accounting is to control the resources of a governmental entity (i.e.
the taxpayers) from
 Misappropriation of assets
 Illegal and/or unwise spending
 Unwise spending
 Inappropriate pace of spending
 Use of improper methods and procedures.
Control of misappropriation of assets: some people might make use of government
resources to maximize/satisfy personal gains/needs. Control over misapplication of assets seeks
to prevent such individual/personal usage of public resources. It involves both physical
and accounting controls. Control over cash, for example, requires both providing a safe for
keeping and regularly counting it and reconciling the amount on hand to the balance in the
general ledger.
Illegal spending is defined as exceeding the total of the legal appropriation or using the
government‘s resources for a purpose which has not been authorized. Budget is a legal binding
document. Whenever we exceed it (spend beyond the available resource) we become illegal.
Unwise spending refers to amounts which fall within the limits of the budget, and which
technically are used for the authorized purpose. However, they are not really the best uses of the
government‘s money. Example is an effort to use up the entire budget at the end of the year
by purchasing supplies which aren‘t really needed. Classifying expenditure as ―unwise‖ is
matter of judgment, of course, and unwise spending is harder to quantify and control than illegal
spending.
Inappropriate pace of spending refers to either spending money too quickly, so that an
insufficient amount is left in the last month of the year, or spending so slowly that
governmental objectives are not able to be met in the early months of the year and idle

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resources might be left on hand at year end. An example is withholding the ―Repair
and Maintenance‖ budget from routine but necessary maintenance, in the fear the budget will not
be sufficient if a major repair is needed later in the year.
Use of improper methods and procedures: timely and accurate accounting records for all
expenditures provide the foundation for controlling each of the above. Production of timely and
accurate accounting records requires that particular procedures be followed. The
accounting department of a governmental entity will therefore concern itself with ensuring that
appropriate procedures are following in ordering, receiving, charging and paying for goods
and services, and will seek to provide and required completion of proper forms for
documentation of those steps.
Accounting for supplies
Since payroll and supplies tend to be the largest operating expenditures of a government
entity, accounting for them will be looked at more detail.
It is common for governmental entities to centralize the purchasing function with one
officer_ who may work alone or as head of a purchasing department, depending on the size of
the entity.
The duty of the purchasing officer is simply to obtain the right goods at the right time for the
right price. The reason for centralized purchasing is obvious. If individuals in the government do
their own purchasing, budget control of the activity becomes difficult .Additionally; vendors may
become confused, not knowing who in the governmental unit has authority to obligate the unit
financially, and refuse to fill orders. Also, decentralized ordering may prevent the
governmental unit from taking advantage of the bargaining power that comes from ordering in
large quantities.
The work of a purchase officer in placing the order is only one aspect in fixing proper
accountability for the purchase of supplies.
The activity has several steps:
 Prepare Requisitions. Requisitions should be completed by the department which has
need of supplies.
 Secure Bids or pro-forma Invoices. Requisitions will be sent to the entity‘s
purchasing department, which gets offer/s estimates of the price of the item(s)
whether bids or pro-forma invoices are obtained usually depends on the value of the item

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 needed. For example, only one pro -forma may be needed for items of less than 500 birr,
there may be needed for amounts from 500 to 50,000 birr, and secured bids may be
required for amounts over 50,000 birr. Those amounts may vary, of course, depending on
the size, nature, and needs of the particular organization.
 Place the orders. The purchasing agent will typically fill out a purchase order. Before
being sent to the vendor, it should be checked by the department head or other
responsible authority for appropriateness, and also checked by the accounting department
 to ensure that a sufficient legal budget appropriation exists, and to
 prepare the entry to record the encumbrance
 Receive the materials or supplies. When the materials or supplies arrive, they
should be inspected for damage, and the quantity of each item should be recorded.
 Receive and approve the Invoice. The invoice for the goods normally arrives with the
goods or in the post shortly thereafter. It typically goes to the accounting
department. There, it is compared to the receiving report to ensure that the quantity billed
is the same as quantity received, the prices, the accounts(s) will also check
extensions and footings, verify the existence of an appropriation sufficient to cover the
cost, reverse the applicable encumbrance entry, charge the proper accounts, and then
request a check for payment of the invoice.
 Pay the Liability. On the request of the accounting department, a check will be
prepared, signed by (an) authorized signers(s) and delivered to the vendor.
Accounting for Supplies Inventory
There are three methods of accounting for supplies inventory which conform to GAAP for
governmental entities.
1. The purchase method: this method is the simplest. When the correct invoice is received,
the following entry is made. The resources allocated for the purchase of supplies have
been used, so no further concern is taken for accounting for the inventory. There is no
inventory asset account. As the resources assigned for the supplies are paid, the
supplies are to be recognized as expenditure when received.
This method is best if ending inventories are immaterial.
e.g. Assume the purchase of 15, 000 birr worth of office supplies.

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Expenditures 15,000
Accounts Payable 15,000
(To record the purchase of supplies)
2. The consumption method-periodic inventory: this method charges expenditures only
for those supplies which were actually used in the period. It is best when there is unused
balance remain on hand at the end of the period. The initial entry is the same as
for purchase method (See above). At the end of the period, however, inventory is
counted, and expenditures are reduced by the balance of ending inventory.
e.g. Assume the same purchase as above, with a beginning inventory of zero (0) and an
ending inventory of 2,000 Birr. Fund Balance also needs to be reserved for the amount of
the inventory to show that the amount is not available for appropriation in the next year.
Expenditures 15,000
Accounts Payable 15,000
(To record the purchase of supplies )
Inventory of Supplies 2,000
Expenditures 2,000
Net resource 2,000
Reserve for Inventory 2,000
(To recognize left-over supplies as inventory (asset)
3. The consumption method-perpetual inventory: in this method supplies are to be
recorded as Asset when purchased and to be charged to expenditures as they are issued
from store. In this case the entry for the initial purchase is different from the purchase
method above. Since the supplies are recorded as Asset at the time of purchase, there is
no need to reverse the expenditure account at year end as we did to the consumption
method – periodic above. But the unreserved fund balance will be recorded to indicate
the balance is not part of the next year‘s appropriation.
Inventory of Supplies 15,000
Account payable 15,000
(To record purchase of supplies)
Expenditures 1,000
Inventory of supplies 1,000

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 (To record the issuance of supplies from the storeroom)
Net resource 2,000
Reserve for Inventory 2,000
(To reserve Fund Balance for leftover supplies)
Classification of Expenditures
Expenditures should be classified in the following ways: fund program, organizational unit,
activity, character, and object. Subsidiary ledgers are employed as needed to facilitate
preparation of statements based on those classifications.
Accounting for Revenues
Revenues appear on the operating statement. The operating statement is known formally as the
statement of Revenues, Expenditures and Changes in net resource/ fund balance, which is
sometimes simply called the statement of Changes. The operating statement is to account for
increases and decreases in fund financial resources.
Revenues are specifically defined as all increases in fund net assets(net resources) except
those arising from inter fund transfers and from proceeds of long term debt.
Revenues should be further classified by fund type and sources. If the revenue is classified by
type, it facilitates management in several ways.
1. Classification aids in preparing and controlling the budget.
2. It helps to control actual collections of public accountability.
3. It enables the preparation of financial statement & financial statistics for public
accountability.
The following are typically the main revenue source classes of General Fund:
 Taxes – includes property, land, income, sales and other taxes; penalties and interest on
delinquent taxes
 Licenses and permits
 Intergovernmental revenues – includes grants, shared revenues and payments by other
governments in lieu of tax
 Charge for services
 Fines and forfeits
 Miscellaneous revenues – includes interest earnings, rents and royalties; contribution and
donations from private sources

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Taxes
Taxes are a forced contribution imposed on the citizens by the government to meet public
expenditures. Citizens are given no choice but to p ay. Taxes must be paid, regardless of
whether or not the citizen being taxed is receiving any direct benefit as a result of paying the tax.
There is no direct relationship between the tax liability to be paid and the benefits
received by the tax payer. There are a number of different kinds of taxes including: property
(land use), sales, excise, income, customs duty, capital gains, etc. Giving formal notice of
a tax to be paid is called a levy. Taxes which are not paid on time usually accrue interest on any
unpaid balance. These penalties and interest create an additional revenue source for the
government. Since taxes constitute the primary revenue source for most governments,
accounting for them will be given the most coverage of the revenue types. Most taxes however,
would be expected to go into the general fund.
In addition to revenue accounts, the following accounts may also be needed to account
For tax collections:
Assets Accounts
 Taxes Receivables – Current: is used to accrue taxes which are due in the current Year.
Taxes which are expected to be collected within the current year are to be recorded in
this account.
 Taxes Receivable – Delinquent: is used to record any taxes which are past due.
Taxes which have been expected to be collected in the current year, but fail to do so are to be
recorded in this account.
 Tax Lien-Receivable: is used to record taking possession of goods on which an owed
tax has not been paid. This account is used to record the total amount of tax liability that a tax
payer fails to pay on the due date, including penalty and interest, for which the taxing agency
seized his/her/it‘s property.
 Interest and Penalties Receivable on Delinquent Taxes : is used, obviously, to record
interest and penalties due on unpaid taxes.

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 Trust for Property Owners: If those possessed goods are sold in an attempt to cover
the tax any additional cost incurred in collecting it, the Trust for Property Owners
account is used to record any balance remaining from the selling price after the tax and collection
cost are deducted. (In Ethiopia, if goods subject to excise tax are taken and sold for non-payment
of tax, the owner of the goods has up to five years to claim any excess from this account).
Contra Asset Account
 Allowance for Uncollectible Taxes: is used for recording the estimate of taxes which
the government will not be able to collect. As there is no profit to determine, no expenses will
be recognized. Hence, Bad debt expense is not used for taxes. Rather any uncollectible
taxes are accounted for as a reduction in revenue and the balance is to be recorded in a
contra asset account called Allowance for Uncollectible Taxes. Note that this is different from
FP accounting.
Example Journal Entries
Assume the following transactions did happen in the General Fund of the municipality of city
‘’G’’.
1. Land use taxes, Birr100,000, were assessed in January 2008, and they are levied
(formally made due) in June 1, 2008 to be paid by July 30, 2008. The revenues are to be
used to meet the year 2009 expenditures. 99% of the taxes are expected to be collected.
Total amount of tax to be collected in the fiscal year is Birr 100,000. This amount
represents and is to be recorded as Tax – Receivable – Current; an Asset account with
normal side of Debit. Of this amount 1% is expected to be uncollectible which is
to be recorded in Allowance for Uncollectible Taxes account; a contra asset
account with normal side of Credit. Hence, the journal entry for the above transaction
would be:
June1,2008 Taxes Receivable current Birr 100,000
Allowance for Uncollectible Current tax 1,000
Revenues 99,000
(To record accrual of tax levy)
Note that the amount recorded as revenue is the net of the receivable less the allowance for
uncollectible taxes. This is different from for-profit accounting, where the gross is recorded as
income, and the estimated uncollectible amounts are charged to expense.

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2. On the due date, only 80,000 birr was received
All taxes which are paid are credited to the current taxes receivable account. As the taxes are
collected in cash, Cash is debited and the Tax – receivable – Current is credited.
July 30 Cash Birr 80,000
Taxes Receivable-Current 80,000
To record collection of taxes
After the due date, there are more current tax receivables remained uncollected which
become past due. They do not more represent current year‘s receivable. Therefore, they should
be cleared out from the Tax – Receivable – Current account and the balance made zero. Any
taxes which are not paid by the due date become delinquent, and should be reclassified from the
current taxes receivable to the delinquent taxes account. In other words, instead of Tax
Receivable – Current, it should be recorded as Tax- Receivable- Delinquent.
July 30 Taxes Receivable-Delinquent Birr 20,000
Taxes Receivable-Current 20,000
To record taxes becoming delinquent, (Delinquent taxes are those which are not paid by the due
date)
At the same time, the uncollectible allowance related to delinquent taxes should also be
reclassified to an allowance for uncollectible delinquent taxes account. This is because we have
turned the balance of Tax Receivable Current account in to zero: Birr 80,000 and Birr 20,000
have been credited in the first and second entry respectively. Therefore, we have no current
balance from which we are to claim uncollectible. Rather the expected uncollectible might still
remain with the delinquent balance. The entry to record such reclassification is as follows:
July 30 Allowance for Uncollectible Current Tax Birr 1,000
Allowance for Uncollectible Delinquent Tax 1,000
To record reclassification of allowance of estimated losses on taxes
3. Assume that one month late, some 75% of the delinquent taxes are paid. The
municipality has a rule to charge a flat penalty of 10% - for not obeying the law and pay the tax
liabilities on the due date and simple interest of 12% per annum – for money tied up.
When taxes become delinquent, there is usually some penalty and/ or interest assessed.
Penalties usually are imposed for violating the law – not meeting obligation on the due date –

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and the interest is a compensation for opportunity forgone. The penalty and interest for our case
would be calculated as follows:
Delinquent tax = Birr 20,000 * 75% = Birr15,000
Penalty = 15,000 * 10% = 1,500
Interest = 15,000 * 12%*1/12 = 150
Total to be collected from the tax payers = 16, 650
Aug 30 Cash 16,650
Taxes Receivable-Delinquent 15,000
Revenues (Penalties and Interest on Delinquent Taxes) 1,650
(To record collection of delinquent taxes plus penalties and interest)
The penalty and interest may be accrued, although sometimes it is not. Monthly, Quarterly,
some other interim period, or at year end, interest could be accrued. Assume interest is
accrued quarterly; the accrual entry for the above case is as follows
Birr20,000 (delinquent tax) * 10% + Birr 20,000*12% *3/12 = Birr 2,600
Penalties and Interest on Delinquent Taxes Birr 2,600
Revenues 2,600
(To record penalties and interest due on delinquent taxes )
4. After six months the taxing authority has seized the property of non-payers.
Lien would come into effect when the property on which the tax was due could be seized by the
governmental unit. The entry would be recorded based on the total amount the taxing agency
needs from the tax payer, inclusive of penalty and interest; not the value of the property
seized. At the time of seizure the following entry would be necessary.
Delinquent tax = Birr20,000 * 25% = Birr 5,000
Penalty = Birr 5,000 * 10% = 500
Interest =Birr 5,000 * 12%*6/12 = 300
Total amount to be claimed from the tax payers = 5, 800
2009 Tax Lien-Receivable 5,800
Feb 1 Taxes Receivable-Delinquent 5,000
Revenues (Penalties and Interest on Delinquent Taxes) 800
5. On February 15, the seized property is sold for Birr 7,000. Cost associated with the sale is 0
when the seized property is sold, the taxes, plus interest and penalties, plus any cost of the sale

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should be paid. Any excess is held in trust for the owner of the property. And at the time of sale
the following entry is needed

Feb 15 Cash 7,000

Tax Lien Receivable 5,800
Trust for property owners 1,200
To record sale of seized property
6. On March 1, the property owners claimed back their $1,200 excess and get paid. March 1
On march 1, Trust for property owners 1,200
Cash 1,200
Intergovernmental Revenue
Intergovernmental revenues consist of grants and other financial assistances received from other
governmental units.
Grants
A grant is money which is given for a specific purpose, and it should be classified according to
both its source and its purpose. A grant could be given from the federal government to a regional
state government (called a subsidy), or as is also common in Ethiopia, from a foreign
government to the federal government. Grants can be divided into two types: capital and
operating. A capital grant is, of course, for the construction or acquisition of a long -lived asset.
An operating grant is for any purpose other than construction or acquisition of a long lived asset.
For example, imagine that a grant of 500, 000 Birr has been given for construction of a new road
from Bahir Dar to Burie.
When the money for the grant is promised, Deferred Revenue (a liability) is credited
Grants Receivable 500,000
Deferred Revenue 500,000
Subsequently, assume that 100,000 Birr is spent for gravel for the road. The following entries
would be needed:
i) Expenditures 100,000
Cash 100,000
ii Deferred Revenues 100,000
Revenues 100,000

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When the money is finally used up, Deferred Revenues should have a zero balance.

Accounting for inter fund transactions

Inter fund transactions are transactions between different entities within the governmental unit.
Transfers are different from transactions, because they are not exchanges. Rather they are one
side flow of resources with no return. As such, they need to be recorded in two different
sets of books. The five types of inter fund transactions commonly encountered in governmental
accounting are listed, defined, and illustrated below.
1 Inter fund loans and advances – Funds sometimes loan money to each other to use idle
cash effectively. The money is only temporarily transferred and must be repaid. Since each
fund is a fiscal entity, these inter fund payables and receivables must be disclosed in the
financial statement of each fund involved. Interest is sometimes charged to or by proprietary
funds; it is not normally charged on advances and loans between governmental funds. For
example, if the general fund loaned 50,000 Birr to a special revenue fund, the entries required
would be: On the books of the general fund
Due from the special Revenue fund 50,000
Cash 50,000
(To record a loan to the special revenue fund)
On the books of the special revenue fund
Cash 50,000
Due to the General fund 50,000
(To record a loan from the general fund)
Inter fund loans and advances are not increases or decreases in f und net assets. On the
creditor fund‘s books they only move resources from one current asset (cash) to another
(Due from…). On the debtor fund‘s books, they increase a current asset (cash) by increasing a
current liability (Due to..).
In both cases, the effect on net assets is zero. As such inter fund loans and advances are not
closed at the end of the year.

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2 Quasi-external transactions – These are transactions that would be treated as revenues,
expenditures, or expenses if they involved organizations external to the governmental unit.
They are the only type of inter fund transaction which is considered as revenue and
expenditure within the entity. These transactions are typically between an internal service fund
and the general or a special revenue fund.
The fund giving the service recognizes revenue; the fund receiving the service recognizes
expenditure. An example of a quasi-external transaction is a shared garage for the governmental
unit which repairs any of its cars regardless of which fund is responsible for it. The garage will
charge the respective fund for work done, and recognize revenue from it. The fund which is
responsible for the vehicle recognizes expenditure.
The quasi-external transactions are recognized as revenue and expenditure only on the
individual and (sometimes) combining fund statements. These transactions are eliminated on the
combined statement of the government unit, and not included as revenue or expenditure for the
unit as a whole. If a car repair of 1,000 Birr was done to a vehicle the general fund was
responsible, the following entries would be needed:
On the books of the General Fund
Expenditures 1,000
Due to Internal service Fund 1,000
The cost of repairing a vehicle
On the books of the Internal service fund
Due from the General fund 1,000
Revenues 1,000
To record repair of a vehicle
3. Reimbursements – These are transactions that reimburse a fund for expenditures made by
it on behalf of another fund, i.e. one fund pays a bill on behalf of another and is then reimbursed.
For example, the Ministry of Health operates clinic in Addis Ababa and South Omo. The Addis
Ababa Clinic, for convenience, might pay a bill of 3000 Birr for medicine on behalf of South
Omo clinic. The South Omo clinic would then reimburse the AA clinic. The AA clinic would
charge expenditure at the time of purchase, and then credit expenditures to zero (0).
Payment of the reimbursement would then create expenditure for the South Omo clinic.
On the books of the AA Clinic

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 Expenditure Birr3,000
Cash 3,000
To record payment of bill on behalf of south Omo clinic
Cash 3,000
Expenditure 3,000
To record reimbursement from south Omo clinic
On the books of the South Omo Clinic
Expenditure 3,000
Cash 3,000
To reimburse the AA clinic for medicine purchase
4. (Residual) Equity Transfers- These are nonrecurring transfers made in compliance with
special statues or ordinances that do not qualify as revenues or expenditures to the receiving or
disbursing funds. It is the transfer of fund balance from one fund to another. They are not
revenues or expenditures, they are not other financing sources or uses, even though they are
technically increases/decreases in fund financing resources. Equity transfers appear in the
fund Balance section of the operating Statement. For example, the GF might transfer the
amount of 10,000 Birr to an internal service fund to open a central supply store.
On the books of the General Fund:
Equity Transfers Out 10,000
Due to Internal Service fund 10,000
On the books of the Internal Service Fund
Due from the General Fund 10,000
Equity transfers In 10,000
These transfers increase the net assets of the receiving fund, and decrease the net assets of the
giving fund. Therefore, they must be closed to fund balance at the end of the year
5 Operating Transfers - all other inter fund transfers besides equity transfers, Operating
transfers are recurring periodic transfers made primarily for the purpose of shifting resources
from one fund to another. They are legally authorized transfers from a fund which receives
revenue to the fund through which the resources are to be expended. These transfers are other
financing sources of the receiving fund, other financing uses of the paying fund. For example,
the general fund may make an annual transfer of 8,000 Birr to a Debit service Fund for payment

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of interest on a general long-term debit. At time the transfer is authorized, the following entries
are needed:
On the books of the General Fund
Operating Transfers Out 8,000
Due to Debt Service fund 8,000
To record a transfer to the debit service fund
On the books of the Debit service fund
Due from General fund 8,000
Operating Transfers In 8,000
To record a transfer from the general fund
These transfers are similar to (residual) equity transfers in that they increase the net assets of the
receiving fund, and decrease the net assets of the giving fund

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