Chapter (2)

Fund Accounting
1- What is Fund ?
Business Government
Fund is working capital 1- Fund is a Fiscal and Accounting
Working capital = Entity
Current Assets – Current 2- Each Fund has its own
Liabilities Self-balancing , set of accounts from
Such as : which financial statement can be
Cash , Investment , A/R , prepared
Inventory , A/P 3- Government use several. funds
for several fiscal and accounting
entities to account of their resources
and activities
4- Fund Accounting divide
government into categories of
resources Restriction , for example :
- Fund restricted to acquire a new
building
- Fund for schools
5- Fund Accounting effective mean
for controlling apply Accountability
over restricted resources

2- Fund Characteristics
The Fund Characteristics:
1- Fund Balance (Net Assets) = Assets – Liabilities
2- Fund uses Self-Independent resources
3- Fund uses Double Entry System
4- Fund is named according to its purpose , for example :
- Electricity ………… Electricity utility Fund
- Scholarship ……… Scholarship Fund
- Police & Ambulance …… General Fund

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 3- Basis of Accounting
The Accounting Basis :
1- Cash Basis
2- Full Accrual Basis (FAB)
3- Modified Accrual Basis (MAB) Cash plus other current financial
resources

Cash Basis Modified Accrual Full Accrual

Basis Basis
MAB FAB
Revenue Revenues : Revenues: Revenues:
Recorded when Recorded when Recorded when
Collected Collected now or incurred Collected
later now or later

Expense Expenditures: Expenditures : Expenses :

Recorded when Paid Recorded when Recorded when
Paid now or later incurred Paid now
, not include or later
long –term
notes
Using
Expenditure

Ex 2-3(Modified Accrual Basis)

The following transactions are related to Not-For-Profit organization :
1- A donor pledged (donated) 1,000,000 to be paid in 90 days
2- The donor paid 300,000 of the amount pledged
3- The organization purchased a building for 600,000 , paid 120000 and
given a 30 years mortgage note , useful life 30 years
4- The employees earned 4,000 in wages , not paid
Required
Prepare the journal entries for the following
1- Cash Basis
2- Cash plus other current financial resources (MAB) Modified Accrual
Basis MAB
3- All economic resources (FAB)
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 Answer
Cash Basis MAB FAB
1- No Entry N/R 1,000,000 N/R 1,000,000
Contribution Revenue 1,000,000 Contribution Revenue 1,000,000
2- Cash 300,000 Cash 300,000 Cash 300,000
Contribution Revenue 300,000 N/R 300,000 N/R 300,000
3- Building Expenditure 120,000 Building Expenditure 120, 000 Building 60,0000
Cash 120,000 Cash 120,000 Cash 120,000
N/P 480,000
Depreciation = 600,000/30= 20,000
Depreciation Expense 20,000
Accumulated Dep 20,000
4- No Entry Wages Expenditures 4,000 Wages Expense 4,000
Wages Payable 4,000 Wages Payable 4,000
Statements of Revenue and Expenditure

Cash MAB FAB

Contribution revenue $300,000 $1,000,000 $1,000,000
Building acquisition
expenditure (or depreciation) 120,000 (120,000 $ 20,000
Wage expenditure 0 4,000 4,000
Total expenditure 120,000 124,000 24,000
Excess of revenues over expenditures $180,000 $ 876,000 $ 976,000

Balance Sheets
Cash MAB FAB
Assets
Cash $180,000 $ 180,000 $ 180,000
Note receivable 700,000 700,000
Building (less accumulated depreciation) 580,000
Total assets $180,000 $ 880,000 $1,460,000

Liabilities and fund balance

Wages payable $ 4,000 $4,000
Note payable 480,000
Fund balance $180,000 $ 876,000 976,000
Total liabilities and fund balance $180,000 $ 880,000 $1,460,000

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 4- Main Types of Government Funds
1- Government Funds
2- Proprietary Funds
3- Fiduciary Funds
1- Government Funds
1- Are maintained to account for government’s operating and financing
2- Make services with no charge or with very low charge
3- Used MAB
Government Funds Types (5Types)MAB
1- General Funds (GF) 2- Special Revenue Funds(SPF)
1- Account for Unrestricted, in a An account of Revenues that are
city a general purpose Restricted for Special Expenditure
government functions : Examples
Fire – Police – Street 1-Gas tax revenue dedicated must be
maintenance – General used for High way maintenance
administration 2- Lottery fund proceeds for education
2- Governmental activities will 3- Private donations (Grants) must be
have only one general fund used to repair and maintain parks
4- Income taxes must be used to pay
salaries

3- Debt Service Funds (DSF) 4- Capital Project Funds(CPF)

1- Account for resources restricted 1- Account for resources Held For ,
for payment principal and interest , (Assigned to be ) ….. for the used
on All Long term debt Acquisition or Constructed of
2- Debt services funds get resources Major Facilities(not fixed assets it
from self)
1- G F 2- Fees 3- Taxes 2- Get it resources by bond
issuance (Borrowing)

5- Permanent Funds (PF)

1- Permanent Funds are a type of Trust Fund
2- Earnings or income will be used
Example :
The government received a donation 500,000 to support of its Parks ,
and invested it
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** A Permanent Fund government maintain the donation
(Principal) 500,000
** The interest or income from the investment will be transfer to Special
Revenue Funds to use in its parks
2- Proprietary Funds (FAB)
Funds to gain profit , its account for business activities
Proprietary Funds (2 Types)
1- Enterprise Fund (E F) 2- Internal Service Fund (ISF)
1- Account for business-type 1- Account for business – type
activities in which the government activities
provides Goods or Services 2- Sell goods and provide service
For Example to the government units For
1- Utilities such as Electric , Gas example
and Water Stores to sell supplies , Vehicle ,
2- Hospitals Repair services , Data processing
3- Mass Transportation
4- Parking
5- Airport

3- Fiduciary Funds (2 Types)

1- Trust Fund (TF)
1- Account of assets Held , by the
government for the Benefit of other
parties, such as :
Pension Trust Funds …. In which the
assets are held for the benefit of
employees
2- Investment Pools :
a- Other government such as cities ,
Towns
b- Private purpose in which the assets
are held for the benefit of Individuals,
private organizations
3- The resources of trust funds are
generally held in Stock or Bonds
2- Agency Funds (AG)
Account for assets Held by
government on Behalf of other
parties, such as :
1- Taxes collected by the
university on behalf , and the
Sales taxes
2- Are not used to account for
significant government
operations

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Ex 2-6 (Funds Types)
A city maintains the funds , for each of the following transactions ,
Indicate the Fund for each transaction
Transactions Type of
(Given) Fund
(Answer)
1- The city collected 3 m, of taxes on behalf of the Agency
country in which its located Fund
2- It spends 4 m to pave city streets , using the proceeds Special
of a city gasoline tax dedicated for road and highway Revenue
improvements Funds
3- It receives a contribution of 5 m , per the stipulation of Permanent
the donor , the money is to be invested in marketable Fund
securities and the interest is to be used to maintain a city
parks
4- It collects 800000 in landing fees at the city –owned Enterprise
airport Fund
5- It earns 200000 on investment set aside to make Debt
principal payments to the city’s outstanding bonds, the Service
bonds were issued to finance improvements of the city’s Funds
tunnels and bridges
6- It pays 4 m to contractor for work of one of these Capital
bridges Project
Fund
7- It pays 80000 in salaries to police officers General
Fund
8- It purchase from outside supplier 40000 of stationery Internal
that it will sell to various operating departments Service
Fund
Example (Types of Funds)
From the following , determine the type of fund
Given Fund
1- The collects 1.m fund for an independent Fir district GF
within the city

2- The city spend 2 m on street maintenance using the SRF

proceeds of city tax
3- The city receives a gift of 1.5 .m , the donors will Permanent
requires that the principal amount be invested and that the Fund

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earnings be used to maintain city parks
4- The city collects water 4.m EF
5- The city pays 3.m to contractor for work of a new bridge CPF
6- The city receives 2 m to invest on behalf the country AG
7- The city pays its police officers fees 250000 GF
8- The city purchased equipments for 3. m to be used in ISF
repair services

Example (Types of Funds)

State whether the following statement False or True , and correct it
Statements(Given) Answer
1- Cash basis budgets help the government focus on F, Cash basis …
inter period equity FAB
2- A citizen donated securities to the city , the F, capital project
principal amount donated must remain intact ( Basic fund …..PF
amount ) and the income must be spent on Feeding ,
capital project fund
3- MAB is always identical to FAB F…. No.Dep,
current assts and
current liabilities
4- A city collects property taxes for the benefit of local F, special revenue
schools , special revenue fund fund …….TF
5- The city levied a gasoline tax for the purpose of F, general fund.
maintain streets , general fund …….SRF
6- Property taxes levied by the city , debt service fund F, debt service
fund……. GF
7- Revenue bonds were issued by electric utility fund F ,capital project
to build a new plant , capital project fund fund … EF
8 -Not-for-profit focus on revenue and secondarily on F, Expenditures ,
expenditures then Revenues

Ex 2-5 : (Modified Accrual Basis)

The society for Ethical Teaching, maintains two funds , a General fund
for operations and a Building fund to accumulate resources for a new
building , and given the following transactions :
1- Received cash contribution of 200000, of which 40000 restricted to
acquire the new building
2- Operating costs130,000 (Related to the general fund always),of
which it paid 120000 in cash

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3- It earned 3000 of interest on resources restricted for the acquisition
of the building ,it was received in cash.
4- It transferred 17000 from the general fund (Operating Fund) to the
new building fund
5- It paid 12000 expenses fees to the architect to draw-up a plans for
the new building
Required :
Journalize & Prepare the Statement of Revenues, Expenses and Other
Changes In Fund Balance
Answer
General Fund Building Fund
1- 200000 – 40000 = 160000 Cash 40000
Cash 160000 Contribution Revenue 40000
Contribution Revenue 160000
2- Operating Expenditure 130000 No Entry , it related to General Fund
Cash 120000
A/P 10000
3- No Entry Interest Revenue
Cash 30000
Interest Revenue 30000

4- Transfer Out Transfer In

Transfer out to Building Fund 17000 Cash 17000
Cash 17000 Transfer In General Fund 17000
5- No Entry Expenditure for architectural 12000
Cash 12000

Statement of Revenues, Expenses and Other Changes In

Fund Balance
Excess of Revenue over Expense
= Revenues Minus Expenses
+ Changes (Transferred)
= Change in Fund Balance + Beg . Fund Balance
= End . Fund Balance

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 1- Statement of Revenues, Expenses and Other Changes In Fund
Balance
General Fund Building Fund
Revenues
Contribution Revenue 160000 40000
Interest Revenue ------ 3000
Total Revenues 160000 43000
Expenses
Operating Expenditures 130000
Architecture expense 12000
Total Expenditures or 130000 12000
Expenses
Excess of Revenues over 30000 31000
Expenses
Transfer from (to) other (17000) 17000
Funds
Increase in Fund balance 13000 48000
Example (Book) (Modified Accrual Basis)
From the following transactions Journalize and indicate the type of
fund
1- The district levied $ 9. million property taxes , collected $ 8.8
Answer
General Fund
Dr Cr
Cash 8.8
property taxes Receivable 0.2
property tax Revenue 9
2- The district received a state grant $ 0.2 to purchase computers ,
grant restricted for a specific purpose
Answer
Special revenue fund
Dr Cr
Cash 0.2
Grant Revenue 0.2

3- The district issued $ 12 million in long term bonds to construct a

school building

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 Answer
Special revenue fund
Dr Cr
Cash 12
Proceeds from borrowing 12
4- The district constructed school building 11 million
Answer
Capital Project Fund
Dr Cr
Building Expenditure 11
Cash 11
5-The district incurred $6 million in general operating expenditures ,
paid cash
$ 5.5
Answer
General Fund
Dr Cr
Operating Expenditure 6
Cash 5.5
A/P 0.5
6- Using its state grant , the district purchased computers for $1 million
Answer
Special revenue fund
Dr Cr
Computers expenditures 1
Cash 1
7- The district transferred $ 1.1 million from the general fund to the debt
service fund to make the payment of both principle and interest
Answer
General Fund
Dr Cr
Transfer –out to debt
service fund 1.1
Cash 5.5
Debt service Fund
Dr Cr
Cash 1.1
Transfer –in from general fund 1.1

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Ex 2- 4 : (Modified Accrual Basis)
A special district accounts for its GF (Its only fund ) on a MAB , given
the following transactions
Required
1-Prepare the journal entries
2- Prepare a Statement of Revenues ,Expenditures and Changes in
Fund Balance
Answer
Required (1)
Transaction (1)
It issued 20 m in long –term bonds
Dr Cr
Cash 20
Bond Proceed 20
Or Proceeds from borrowing
**** Proceed …. Repaid , But Revenue( Tax) never repaid
Transaction (2)
It acquired several tracks of land at a total cost 4 m , paid in cash
Dr Cr
Expenditure for land 4
Cash 4
Transaction (3)
It sold a portion of land for 1 m in cash that cost .8 m
Dr Cr
Cash 1
Proceeds from sale of land 1
( Revenue from sale of land )
Transaction (4)
It repaid 2 m of the bonds
Dr Cr
Payment of bonds Expenditures 2
Cash 2
Transaction (5)
It lost Lawsuit and was ordered to pay 9 m over 3 years , and it made
the first payment
Dr Cr
Lawsuit expenditures 3
Cash 3

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Required (2)
Statement of Revenues ,Expenditures and Changes in Fund
Balance
Revenues and Other Financing sources :
Bond Proceeds 20
Proceeds from sale of land 1
Total 21…….. (1)
Expenditures and Other Financing Uses :
Repayment of bonds 2
Acquisition of land 4
Lawsuit 3
Total 9……. .(2)
Excess of Revenues over Expenditures 12…….( 1-2)
Example :
From the following transactions , Journalize and Determine the type of
Fund
Transaction (1)
Taxes lived 450 , collected 300 and 150 will be collect within a year
unrestricted
Fund ; GF
Dr Cr
Cash 300
Tax Receivable 150
Tax Revenue 450
Transaction (2)
It incurred 300 in general operating cost , it paid 100
Fund ; GF
Dr Cr
Operating expenditures 300
Cash 100
A/ P 200
Transaction (3)
It issued Bond of 500 to finance the acquisition of facilities
Fund ; CPF
Dr Cr
Cash 500
Bond proceed 500
Transaction (4)
The city acquired facilities of 400

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 Fund ; CPF
Dr Cr
Facilities expenditures 400
Cash 400
Transaction (5)
GF transferred 50 to DSF to pay principal and interest
Fund ; GF , DSF
GF DSF
Transfer Out DSF 50 Cash 50
Cash 50 Transfer In from GF 50

Transaction (6)
The repair service acquired an equipment for 10 m , giving long term
debt , and its useful life 10 years
Fund ; ISF , FAB
Dr Cr
Equipment 10
N/P 10
Deprecation expense 1
Accumulated depreciation 1
Dep = 10/ 10 = 1
Transaction (7)
The repair service billed the GF 15 m collected in cash , and the repair
service incurred cash operating cost 12m , depreciation 2m
Billed to GF & ISF
GF ISF
Operating expenditure 15 1- Revenue
Cash 15 Cash 15
Revenue 15
2- Operating expenses
Operating expenses 12
Cash 12
3- Dep:
Dep.expense 2
Acc.Dep 2

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Problem 2-2
The district was recently established , given the flowing transactions
Required
Prepare the journal entries
Transaction (1)
GF received its taxes revenue 150 m , it incurred operating costs ,
excluding transfers to other funds of 100 m
Dr Cr
Taxes Revenue
Cash 150
Taxes revenue 150
Operating expenses
Operating expenditures 100
Cash 100
Transaction (2)
GF transferred 20 m to DSF, of this 15 m was to repay the principal of
bonds outstanding , 5 m was for interest
1- Transferred
GF DSF
Transfer Out DSF 20 Cash 20
Cash 20 Transfer In from GF 20
2- Principal + Interest
Dr Cr
Principal expenditure 15
Interest expenditure 5
Cash 20
Transaction (3)
The district issued 130 m in bonds to finance plant factory
( construction ) , of this it expensed 40 m
1- Issued Bonds
Dr Cr
Cash 130
Bond Proceeds 130
2- Expense :
Dr Cr
Plant expenditure 40
Cash 40

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Problem 2-10
The newly formed B. School district , and given the following transaction
Required
Prepare the journal entries & Indicate which fund
Transaction (1)
It lived and collected property taxes 110 m
GF
Dr Cr
Cash 110
Taxes revenue 110
Transaction (2)
It issued 30 m in long –term bonds to construct a building
CPF
Dr Cr
Cash 30
Bond Proceeds 30
Transaction (3)
During the year , it constructed the building at a 25 m , it expects to
spend 5 m balance in the following years , useful life 25 years
CPF
Dr Cr
Building expenditure 25
Cash 25
No Depreciation
Transaction (4)
It incurred 70 m in general operating costs of which 63 paid cash , the
remainder balance expects to pay in the following years
GF
Dr Cr
Operating expenditure 70
Cash 63
A/P 7
Transaction (5)
It transferred 12 m from GF to a fund established to account for
resources set aside to service the debt (DSF) . of this 10 m was for
repayment of the debt , 2 m was for interest
Transferred
GF DSF
Transfer Out DSF 12 Cash 12
Cash 12 Transfer In from GF 12
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Transaction (6)
From DSF , it paid principal 6 , Interest 2
DSF
Dr Cr
Principal expenditure 6
Principal interest 2
Cash 8
Transaction (7)
It collected 4 m in hotel taxes restricted to promoting tourism , during
the year it spent e m on promoting tourism

SRF
1- Collections :
Dr Cr
Cash 4
Tax revenue 4
2- Expenses
Dr Cr
Tourism expenditure 3
Cash 3
Transaction (8)
The district established a supplies store to provide supplies to various
departments , the GF transferred 4 m , and during the year the store
purchased and paid 2m supplies , sold 1 m ( at cost ) for cash
GF DSF
1-Transferred 1- Transferred
Transfer Out ISF 4 Cash 4
Cash 4 Transfer In from GF
2- Purchased supplies 4
No. Entry 2- Purchased supplies
3- Sold supplies : Supplies inventory 2
Supplies expenditure 1 Cash 2
Cash 1 3- Sold supplies
Cash 1
Revenue 1
4- Cost of supplies
Cost of supplies sold 1
Supplies inventory 1

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Example (Statement )Using the following data to prepare the
statement of Revenues, expenditures ,and other Changes in Fund
Balance :
Miscellaneous Revenues 180000
Licenses and Permits Revenue 2000000
Expenditures for Educations 3000000
Expenditures for Corrections 1400000
Operating transfers to other fund 1500000
Tax revenues 7000000
Expenditures for Welfare 2100000
Federal Grants ( Donations) 3000000
Expenditures for public safety 750000
Expenditures for highways 900000
Operating transfers from other fund 700000
Fund Balance of Beg. the year 3500000
Required :Prepare the Statement of Revenues, Expenditures ,and other
Change
Answer
Revenues(1)
Miscellaneous Revenues 180000
Licenses and Permits Revenue 2000000
Tax revenues 7000000
Federal Grants ( Donations) 3000000
Total Revenues 12180000
Expenditures(2)
Expenditures for Educations 3000000
Expenditures for Corrections 1400000
Expenditures for public safety 750000
Expenditures for Welfare 2100000
Expenditures for highways 900000
Total Expenditures 8150000
Excess of Revenues over Expenditures (1-2) 4030000
Other Financing Sources & Uses
Operating transfer from other fund 700000
Operating transfer to other fund ( 1500000)
(800000)
Other Changes in Fund Balance 3230000
+ Beg . Fund Bal 3500000
= End . Fund . Bal 6730000

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