CHAPTER FIVE

Accounting for General and Special Fund

5.1. 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 may
only maintain 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.
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 5.2. The General Fund
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.
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 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.
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.

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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 entity wide statements .

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 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.
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 Accounts and Transactions
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,

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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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 a. 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:
1. 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).

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 2. Special assessments
Special assessments are levied against certain properties
to defray part or all of the cost of specific improvements
or services, which are presumed to be of particular benefit
to the properties against which special assessments are
levied. Special assessments are levied when routine
services are extended to property owners outside the
normal service of the government.
3. 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.
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 4. 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.
5. 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.

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 6. 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 forms the resulting damages, or 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.
7. Miscellaneous revenues
They include all revenues other than the above six categories
of revenues, such as:

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 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.

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 b. 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.
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 c. Journal Entries
1. Recording the Budget: Budgetary entry:
Estimated Revenues xxx
Estimated Other Financing Sources xxx
Appropriation
xxx
Estimated Other Financing Uses
xxx
Fund Balance
xxx
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Example 1: Assume that a given governmental unit has made
the following budget estimate for its general fund:
Estimated Revenues:
Taxes 780,000
Licenses and permits256,000
Charges for services 184,000
Estimated Other Financing Sources:
Transfer from other funds 115,000
Bond issue proceed 115,000
Appropriations:
Health and Welfare 270,000
General Government 590,000
Public safety 440,000
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Required: Prepare a budgetary entry.
Estimated Revenue 1,220,000
Estimated Other Financing Source 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.
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2. Property Taxes and Uncollectible
Property Taxes should be recorded in the fiscal year,
in which they are levied, assuming they are also
classified as available. Property taxes are considered
available if they are expected to be collected within
the current budgetary period, or within 60 days after
the end of the period. In unusual circumstances,
NCGA Interpretation-3 allows property taxes to be
collected during a period longer than 60 days, but the
financial statements must disclose both the length of
the period used and the reason for using the longer
period.
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 If taxes levied to finance the next fiscal year were collected in
advance during the current period, the revenue should not be
recognized. Instead, the amount collected should be recorded
as deferred revenue. In the following fiscal year, a journal
entry will be recorded to recognize the deferred revenue
amount collected.
When property taxes are delinquent but expected to be
collected, they should be reported as deferred revenue if it is
estimated that the taxes will not be available to pay current
obligations (collected within 60 days of the end of the fiscal
year).
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.
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 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 doubtful accounts.
Governmental accounting does not recognize a “bad
debt expense,” for these uncollectibles, as does
private business accounting. Instead, an allowance
for doubtful accounts is established in the General
Fund by reducing the amount of revenue recognized
from taxes.
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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
Estimated Uncollectible Taxes-Current 1,000,000
Example 3: Assume that Br.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:

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Cash 16,000,000
Property Taxes Receivable-Current 16,000,000
Estimated Uncollectible Taxes 750,000
Property Taxes Receivable-Current750,000
Example 4: Assume that the remaining receivable
balance is considered delinquent; the journal entry
used to record is as follow:

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a. Property Tax receivable -delinquent 3,250,000
Property Tax receivable- current 3,250,000
b. Estimated uncollectible Tax – current 250,000
Estimated uncollectible – Delinquent 250,000

Example 5:Br. 400,000 is levied in property taxes

during the current year. There is a history of 7.5
percent being uncollectible. Br. 4,000 receivable will
not be collected until 90 days after the fiscal year end.

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1. Revenue Recognized at the Beginning of the Fiscal Year (Time of
Levy)
a. Taxes Receivable 400,000
Revenue – Current R/E Taxes 370,000
Estimated Uncollectible Taxes 30,000
(To record property tax levy)
b. Cash 350,000
Taxes Receivable 350,000
c. Estimated Uncollectible Taxes 20,000
Taxes Receivable 20,0000 (To record current collections
on account and write-offs)
d. Revenues – Current Real Estate Taxes 4,000
Deferred Revenue 4,000
(To record property taxes that do not meet the revenue recognition definition of
available)
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2. Revenue Recognition upon Receipt
a. Taxes Receivable 400,000
Estimated Uncollectibles 30,000
Deferred Revenues 370,000
(To record property tax levy)
b. Cash 350,000
Taxes Receivable 350,000
(To recognize revenue for current collections.)
c. Deferred Revenue 350,000
Revenue – Current Real Estate Taxes 350,000
(To record current collections)

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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.
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Example 6: 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 Real Estate Taxes 200,000
Estimated 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)
Example 7: The uncollectible accounts were understated
by Br. 120,000 in prior years and by Br. 200,000 for the
current year. The change in estimate is recorded as
follows in the current period.

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Revenue – Current Real Estate Taxes 320,000*
Estimated Uncollectible Taxes 320,000
(Br. 120,000 + 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.
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Example8To record the receipt of interest and penalties:
Cash XXX
Interest and Penalties Receivable –
Delinquent Taxes XXX
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.
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:
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Cash xxx
Tax Anticipation Notes Payable xxx
The repayment of the note, with interest, is recorded as
follows:
Tax Anticipation Notes Payable xxx
Expéditeurs (interest) xxx
Cash
xxx

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4. 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.
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5. Grants and Entitlements
□ 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.

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a. State Subsidies
Recognize current fiscal year state subsidies as
current revenue, even though the funds will be
received in the subsequent fiscal year.
Example9: Assume that Br. 50,000 of the current year
transportation subsidy was not received as of the end
of the budget period.
State Subsidies Receiv. – Transportation 50,000
Revenue – Transportation 50,000
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6. 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:
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 a. If the assets are sold by the end of the fiscal year,
report revenue in the operating statement.
b. 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.
c. 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.
Donations are valued at the Fair Market Value of the item
at the time of the donation.
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Example 10: 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
Contributions and Donations 1,000
(To record receipt of revenue from a donation)
Example 11: 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.
Using the above information no entries should be completed,
to record the general capital asset, on the General Fund; but
the Statement of net Assets used to pass the following entry:

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Land Br. 50,000
Investment in Capital Assets Br. 50,000
(To record donated land as a general capital asset)
7. Miscellaneous Revenues
The state and local governmental units may collect a variety
of other revenues such as fines, fees and charges. Since it is
not practical to measure a number of these revenues, GASB’s
Codification, Section 1600.113 recommends that some
miscellaneous revenues should be accounted for on a cash
basis unless the measurable and available criteria can be
satisfied. Miscellaneous revenues should be accounted for in
the General Fund. Use an Enterprise Fund, however, when a
fee is charged to users in exchange for a service.

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 Other accrued revenues such as tuition, interest, etc are
recorded as the current fiscal year if it meets the
measurable and available criteria.
Example 12: The journal entries may look like:
Accounts Receivable – Type XXX
Revenue – Type XXX
8. 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.
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 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.
Example 13: Assume that $10,000,000 of long-term notes
are sold and the proceeds are available to the General
Fund: the following entry should be recorded in the
general fund;
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GENERAL FUND:
Cash 10,000,000
Proceeds from Issuance of
Long-Term Debt 10,000,000
B. Expenditures and Other Financing Uses
Expenditures are decreases in fund financial
resources. Interfund transfers are not classified as
expenditures, but instead are reported as “other
financing uses.” Some examples of General Fund
expenditures are current operations and repayment of
principal and interest on long-term debt.

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 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. Do not record expenditure if there is not a
reduction in the fund’s current financial resources. For
example, a governmental unit may estimate a liability
for compensated absences, but if the actual payments to
employees are expected to be made after the current
fiscal year, the expenditure would not be reported in the
General Fund at year end. Expenditures are generally
classified by function and object.
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The Basic Entry Format for Expenditure should be:
Expenditure Account XXX
Cash or Accounts Payable 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 that were earned but not paid as
of Sene 30 of the budget year.
Expenditures – Salaries and Benefits 425,000
Accrued Salaries and Benefits 425,000

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 NOTE: Payroll expenditures under GAAP reporting include
those payroll costs incurred within the fiscal year. The
actual disbursement of cash or payroll costs does not
always occur in the fiscal year the costs were incurred.
Payroll costs must include all payroll charges incurred
whether or not they are paid during the same fiscal period.
2. Interest Expenditure Accrual
Record accrued interest expenditure/expense as a liability
as the debt is due.
Example 2:
Expenditures – Debt Service Interes30,000
Interest Payable 30,000
Note that the following types of Expenditures may be
deferred:
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1. Insurance Premium
Example 3: 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)
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 There are a few transactions, however, that do not
conform to the above basic expenditure format. They are:
2. Inventory
Governmental accounting requires that amounts spent for
the purchase of goods be recorded as expenditures at the
time of the purchase. An exception is made for inventory.
If the amount of inventory on hand at the end of budget
year is significant, the value of such inventory should be
recorded on the balance sheet as an asset. This inventory
should be disclosed on the balance sheet and the method
of accounting for inventory should be disclosed in the
footnotes to the financial statements.

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Examples of inventory include: Consumable goods, such
as office supplies, paper, computer supplies, building
and maintenance supplies, science lab supplies, etc.
Generally Accepted Accounting Principles (GAAP)
permits two methods of expenditure recognition for
inventories: purchase method and consumption method.
The purchase method recognizes expenditures for
inventory when supplies are purchased. An inventory
account and a fund balance reserve must be established
at the end of the year.
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 The consumption method first records purchase
transactions as supplies, then recognizes expenditures
for inventory as supplies are used. The remaining
balance in the inventory account at year end is
reported as an asset. Since inventories do not finance
current or future general fund expenditures, a portion
of the fund balance equal to the value of the inventory
must be reserved.

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Consumption Method
1. Supplies of $75,000 are purchased.
Supplies 75,000
Cash 75,000
2. Based on a year end count, it is determined that
$60,000 of the supplies was used during the year.
Expenditure 60,000
Supplies 60,0000
3. Fund balance reserve is established at the end of the
year.
Fund balance 15,000
Fund balance-Reserved- supplies 15,000
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Purchase Method
1. Expenditure 75,000
Cash 75,000
2. NO entry
3. Supplies 15,000
Fund Balance-Reserved for supplies 15,000

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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.

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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 duties
addressing debt and debt service funds of this module.
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.
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Example 5: Assume that Br.1,000,000 of 6% bonds are
issued on January 1, 2XX1 and pay interest semiannually
beginning on July 1, 2XX1. Conditions of this specific
bond requires it to be maintained within the general fund.
The entry on July 1, 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 on June 30, 2xx8.

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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 When
the payment includes a principal portion, you should
make an appropriate reduction of the liability in the
statement of net assets – non current liabilities section.

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C. Other Transactions Affecting the General Fund
1. Appropriations
An appropriation is an authorization for administrators
to incur liabilities in the amounts specified in the
appropriation during the budget period. An
appropriation is considered expended when the
authorized liabilities have been incurred. When
determining the uncommitted balance of appropriations,
simply determining unrealized budgetary revenue is not
sufficient. It is not enough to compare budgeted
expenditures or appropriations against actual
expenditures, encumbrances must be considered also.

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2.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 fund resources.

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 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.
Encumbrance Liquidation
An encumbrance may be liquidated in whole or in part
or canceled when any of the following situations occur:
 Satisfactory receipt or legal acceptance of a partial or
complete shipment
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ofGovt
goods
& NFP
or services; 55
 Notice from or failure of the vendor to fulfill terms of
the order or contract;
 Cancellation of the order; and
 If funds are not available due to lack of funds.
Notice that the issuance of purchase orders and/or contracts
has two effects: (1) the encumbrance of the appropriation
that gave the governmental unit the authority to order
goods and services, and (2) the starting of a chain of events
that will result in the governmental unit incurring a liability
when the purchase orders are filled and the contracts
executed. Both effects should be recorded in order to assist
administrators in avoiding over expended appropriations
and to plan for the payment of liabilities on a timely basis.
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 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)

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 HIDAR 10, 2002:
Reserve for Encumbrances Br.20,000
Expenditure Control / Subsidiary Accounts Br.18,250
Encumbrances Br.20,000

Voucher 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.

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 Expenditures and the liability account must both be
recorded in the actual amount due 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 estimated Reservation of Fund Balance as
part of the funds available in the following fiscal year.
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 3. 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.
4. Interfund Activity
Transactions may occur between funds. These
interfund transactions are classified as revenue,
expenditure or expense within the individual funds, but
not to the governmental units overall.
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 Interfund transactions are divided into three categories.
These categories are (a) quasi-external transactions, (b)
reimbursements, and (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.
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 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 Fundsis 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 interfund 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 interfund 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:

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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:

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General Fund:
Expenditures 6,000
Due To Other Funds – Enterprise Fund 6,000
Enterprise Fund:
Due From Other Funds – General Fund 6,000
Revenues
6,000

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 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 interfund 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.

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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.
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:
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 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 payment on behalf of the general fund. When the
General Fund reimburses the cafeteria fund, the
following entry would be made in the General Fund:
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Expenditures – Utilities 20,000
Cash 20,000
c. Interfund Loans
Interfund loans are made from one fund to another.
The fund that made the loan expects to be repaid.
Loans may be short-term or long- term. Interfund loan
amounts are reported as gross. You should not net
interfund 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.
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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 interfund loan of Br.1,000 would be:
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 interfund loan to Fund B)

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Example 6:Closing Entries
Given the following Closing entries information:
Estimated Revenues Br.1,625,000
Appropriations Br.1,620,000
Revenues Br.1,620,000
Expenditures Br.1,610,000
Encumbrances Br.2,000

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 The closing entries may be made with a budgetary
fund balance account as in “A” below or without a
budgetary fund balance account as in “B” below:
A. Closing entries with a budgetary fund balance:
a. Appropriations Control Account 1,620,000
Budgetary Balance 5,000
Estimated Revenues Control 1,625,000
(To close budgetary accounts)

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 b. Revenues Control Account 1,620,000
Expenditures Control Account 1,610,000
Encumbrances Control Account 2,000
Budgetary Fund Balance 8,000
(To close the operating accounts and Encumbrances
Control Account to the Budgetary Fund Balance.)
c. Budgetary Fund Balance 8,000
Unreserved Fund Balance 8,000
(To close the balance of the Budgetary Fund Balance to the
Unreserved Fund Balance.)

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B. Closing entries without a budgetary fund balance
account:
d. Appropriations Control Account 1,620,000
Unreserved Fund Balance 5,000
Estimated Revenues Control Account1,625,000
(To close budgetary accounts)
e. Revenues Control Account 1,620,000
Expenditures Control Account 1,610,000
Encumbrances Control Account 2,000
Unreserved Fund Balance 8,000
(To close the operating accounts and Encumbrances
Control Account to the Unreserved Fund Balance)
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 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(National Council on Govtal Accounting) 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 Special Revenue Funds are
established.
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Nature and Purpose
Special Revenue Funds are used to account for financial
resources, which are restricted to expenditures for specified
purposes.
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.
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 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 that accounting for Special Revenue Funds are
similar to that of the General fund we have illustrated
in previous section of this unit.
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