Government Accounting Fund Types: CPA FAR Exam Guide
Master government fund accounting for the CPA FAR exam, including governmental, proprietary, and fiduciary fund types, measurement focus, and basis of accounting.
Introduction to Government Fund Accounting
Government accounting differs significantly from commercial accounting. State and local governments follow standards established by the Governmental Accounting Standards Board (GASB). One of the foundational concepts is fund accounting, which segregates resources into separate accounting entities (funds) based on their intended purpose and the restrictions placed on their use. Understanding fund types is critical for the government accounting portion of the CPA FAR exam.
The Three Fund Categories
GASB classifies funds into three broad categories: governmental funds, proprietary funds, and fiduciary funds. Each category uses a different measurement focus and basis of accounting.
Governmental Funds
Governmental funds account for the general government activities financed primarily through taxes, intergovernmental revenues, and other nonexchange transactions. They use the current financial resources measurement focus and the modified accrual basis of accounting.
General Fund
The general fund accounts for all financial resources not required to be reported in another fund. It is the primary operating fund and is always reported. Property taxes, sales taxes, and most general government expenditures flow through the general fund.
Special Revenue Funds
Special revenue funds account for the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. An example is a fuel tax fund restricted to road maintenance.
Capital Projects Funds
Capital projects funds account for financial resources restricted, committed, or assigned for the acquisition or construction of major capital facilities and other capital assets (other than those financed by proprietary or fiduciary funds).
Debt Service Funds
Debt service funds account for the accumulation of resources for, and the payment of, general long-term debt principal and interest. These funds track resources set aside to service bonds and other long-term obligations.
Permanent Funds
Permanent funds report resources that are legally restricted so that only earnings, and not principal, may be used for purposes that support the government's programs for the benefit of the government or its citizenry. A common example is a cemetery perpetual care fund.
Proprietary Funds
Proprietary funds account for business-type activities where the government charges users for services. They use the economic resources measurement focus and the full accrual basis of accounting, similar to commercial entities.
Enterprise Funds
Enterprise funds account for activities where goods or services are provided to the general public for a fee. Common examples include water and sewer utilities, airports, public transit systems, and municipal golf courses. An enterprise fund is required when any one of three criteria is met: the activity is financed with debt secured solely by a pledge of the net revenues of the activity, laws or regulations require the activity to recover its costs through fees, or the government's pricing policies are designed to recover the cost of providing services.
Internal Service Funds
Internal service funds account for activities where goods or services are provided to other departments or agencies within the government (or to other governments) on a cost-reimbursement basis. Examples include centralized printing, fleet management, and information technology services.
Fiduciary Funds
Fiduciary funds account for resources held by the government in a trustee or agency capacity for individuals, private organizations, or other governments. They use the economic resources measurement focus and the accrual basis of accounting. Fiduciary fund resources are not available to support the government's own programs and are therefore excluded from the government-wide financial statements.
Pension (and Other Employee Benefit) Trust Funds
These funds report resources held in trust for employee pension and other postemployment benefit plans.
Investment Trust Funds
These funds report the external portion of investment pools managed by the government for other governments or entities.
Private-Purpose Trust Funds
These funds report resources held in trust for specific individuals, private organizations, or other governments, where both the principal and earnings must benefit the designated beneficiaries.
Custodial Funds
Custodial funds (formerly agency funds under GASB 84) report resources held temporarily for individuals, private organizations, or other governments. Examples include property tax collections held on behalf of overlapping jurisdictions.
Measurement Focus and Basis of Accounting Summary
- Governmental funds: Current financial resources measurement focus, modified accrual basis. Revenues are recognized when measurable and available. Expenditures are recognized when the fund liability is incurred.
- Proprietary funds: Economic resources measurement focus, full accrual basis. Revenues are recognized when earned, expenses when incurred.
- Fiduciary funds: Economic resources measurement focus, full accrual basis.
Exam Preparation Tips
- Memorize the five governmental fund types, two proprietary fund types, and four fiduciary fund types.
- Know which measurement focus and basis of accounting each fund category uses.
- The general fund is always reported; other funds are reported only when legally required or when the government has a qualifying activity.
- Governmental funds report expenditures (not expenses), and they do not report long-term assets or long-term liabilities on their balance sheets.
- Under modified accrual, "available" typically means collectible within 60 days of year-end for property taxes, though some governments use different periods.
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