🎥+ ✏️Example: Governmental Fund 🟢

Responses

1. 

   Luis Perez 6 August 2024

   Hello, for transaction # 5, would the payment be coming out of the general fund or the capital fund? I’m only confused due to the architect fees being associated with the new building. Thank you.

   1. 

      Maroun, CPA 12 August 2024

      Hello Luis,

      In this case, because the architect fees are accounted for as expenses rather than capital expenditures, they should be paid from and reported in the General Fund, not the Capital Project Fund. This treatment aligns with the proper use of the General Fund for operational costs.
      The capital project fund includes capital outlay expenditures, which are typically capitalized and included in the cost of the capital asset when deriving the government-wide financial statements.

      I hope this helps!

      1. 

         SHANE 13 August 2024

         I was wondering the same thing as Luis. Thanks for clarifying.

         However, I thought in fund accounting, under the modified accrual basis, “expenses” are always classified as “expenditures”. Is this not the case?

         Thank you.

         1. 

            Maroun, CPA 14 August 2024

            Hello Shane,

            In fund accounting, capital purchases, debt service payments, and operating expenditures are all treated as current-year expenditures. This means that, regardless of whether the spending is for long-term capital assets, paying down debt, or covering day-to-day operational costs, these expenditures reduce the available financial resources in the year they are incurred.

            The distinction between operational expenditures and capital outlay expenditures is crucial because it determines which fund the expenditure is recorded in:
            – Operational Expenditures: These include routine costs necessary for the government’s daily operations, such as salaries, utilities, and non-capitalized services. These are typically recorded in the General Fund.
            – Capital Outlay Expenditures: These are used for acquiring, constructing, or improving capital assets like buildings, infrastructure, or large equipment. These expenditures are typically recorded in the Capital Project Fund.

            The term “expenses” was used to indicate that the architect fees were treated as “operating expenditures”, and NOT capital expenditures. This choice of wording was intended to align with the GAAP concept of an expense, but I acknowledge that it may cause some confusion given the different terminology used in fund accounting. In governmental accounting, “expenditures” is the appropriate term, especially when discussing how funds are allocated and reported.

            We will update the video!

2. 

   Brandon Hutchins 6 January 2025

   Why do we use the term “expenditures” for governmental accounting and the term “expenses” for financial accounting? Aren’t they essentially the same thing?

   1. 

      Maroun, CPA 8 January 2025

      Hello brandon,

      The terms “expenditure” and “expense” are used differently in governmental and financial accounting because they reflect the distinct goals and frameworks of each system. While they may seem similar, they have unique meanings depending on the context.

      “Expenses” refer to the cost of goods or services that are consumed or used up in the process of generating revenue. In financial accounting, expenses are tied to the accrual basis of accounting, where they are recognized in the period when the benefit is received or the service is consumed, regardless of when payment is made. For example, if a company uses electricity in its operations during a specific month, the cost of that electricity is recorded as an expense for that month, even if the bill is paid later.

      “Expenditures”, on the other hand, refer to the outflow of cash or other assets to make a purchase. This term is more commonly used in governmental accounting and emphasizes the actual use of financial resources. Expenditures are recorded when cash is spent or liabilities are incurred, focusing on the financial flow rather than the timing of when the benefit is realized. For example, when a government pays for a construction project, the payment is recorded as an expenditure, even if the benefit of the project extends over many years.

      I hope this helps clarify the difference!

3. 

   Joseph Geraud 30 April 2026

   PROfessor,
   1. I was a bit confused about Transaction #5 because you debited “Capital Outlay Expenditure,” yet your answer to Luis and Shane stated, “In this case, because the architect fees are accounted for as expenses rather than capital expenditures, they should be paid from and reported in the General Fund, not the Capital Project Fund. That statement doesn’t seem to agree with the terminology used in the explanation of Transaction #5 or the Statement of Revenues, Expenditures, and Changes in Fund Balance for the Capital Projects Fund. I thought that the placement of the expenditure made sense in reconciling the Statement of Revenues, etc. But now I’m afraid I do not understand why you said that the $150,000 “expense” (not ‘expenditure’?) should have come from the General Fund, not the Capital Projects Fund.
   2. I drew up several t-accounts as you suggested in the beginning of the lesson and this was helpful in tracking everything we were doing.
   3. I am failing to understand the General fund portion of the Balance sheet. That is, I don’t understand the last line which combines the $100,000 A/P and Fund Balance of $300,000. I am accustomed to subtracting the liabilities from the assets, which would have resulted in $300,000 so the purpose of adding the two numbers together for a result of $400,000 is lost on me. Can you explain? Thank you!

4. 

   Joseph Geraud 3 May 2026

   Hello, again
   I just came to the realization of what a dumb question I asked about the Balance Sheet for the General Fund. I am so used to seeing a balance sheet with 2 sections, “Assets” and “Liabilities & Equity,” that it just went right over my head when I saw the heading, Total Assets & Liabilities…I forgot about your explaination of how the basic “Accounting Equation” in financial accounting changes for the “Statement of Net Position” or “Fund Balance.”
   I apologize for wasting your time with that one.

   1. 

      Maroun, CPA 4 May 2026

      Hello Joseph,

      Not a dumb question at all. Governmental fund statements are formatted differently, so it is easy to pause on that.

      Also, your instinct on Transaction #5 was correct. The $150,000 architectural fees for drafting plans for a new municipal building belong in the Capital Projects Fund and, at the fund level, are recorded as a capital outlay expenditure. In governmental fund accounting, we use the term expenditure in the fund statements, even though at the government-wide level, that same cost would be treated as part of the capital asset/construction cost.

      Thus, the key distinction is:
      In the Capital Projects Fund → record an expenditure
      In the government-wide statements → capitalize it as part of the building project

      Hope this helps!