This page contain free CPA practice questions covering fund accounting that include governmental funds, proprietary funds and fiduciary funds.
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Governmental Funds Five fund types are classified as governmental funds:
- The General Fund accounts for most of the basic services provided by the government. Technically, it accounts for and reports all financial resources not accounted for and reported in another fund.
- Capital projects funds account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays. As such, it accounts for the purchase or construction of major capital improvements, except those purchased or constructed by a proprietary (and less commonly, fiduciary) fund.
- Debt service funds account for and report financial resources that are restricted, committed, or assigned to expenditure for principal and interest, other than interest or principal on proprietary or fiduciary activities. Governmental Funds
- Special revenue funds account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for a specified purpose other than debt service or capital projects. These include activities funded by federal or state grants or by taxes specifically restricted to certain activities. Governmental Funds
- Permanent funds account for and report resources (typically provided under trust arrangements) that are restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government’s programs. Governmental Funds
Proprietary Funds This category of funds is used to account for a government’s activities that are businesslike in nature. Specifically they operate to provide services to customers who pay for the services received. There are two types of proprietary funds:
- Enterprise funds are used when resources are provided primarily through the use of sales and service charges to parties external to the government. Examples of enterprise funds include water and other utilities, airports, swimming pools, and transit systems.
- Internal service funds account for services provided by one department of a government to another, generally on a cost-reimbursement basis. In some cases, these services are also provided to other governments. Examples of internal service funds include print shops, motor pools, and self-insurance funds.
Fiduciary Funds Fiduciary funds, sometimes known as trust and agency funds, account for resources for which the government is acting as a trustee or collecting/disbursing agent. Four types of fiduciary funds exist:
- Agency funds are used to account for situations in which the government is acting as a collecting/disbursing agent. An example would be a county tax agency fund, where the county collects and disburses property taxes for other taxing units within the county, such as independent school districts.
- Pension (and other employee benefit) trust funds are used to account for pension and employee benefit funds for which the governmental unit is the trustee.
- Investment trust funds account for the external portion of investment pools reported by the sponsoring government.
- Private-purpose trust funds report all other trust arrangements under which principal and income benefit individuals, private organizations, or other governments.