CHAPTER FIVE

ACCOUNTING FOR GENERAL & SPECIAL REVENUE

FUND
5.1 Nature of General and Special
Revenue Funds
The General Fund and Special Revenue Funds
typically are used to finance and account for most
general governmental activities.
– include police and fire protections, central
administration, social services and similar general
operating activities of state and local governments.
Accounting and reporting of the funds identical.
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 Cont..

 Special revenue funds are established to account for

general governmental financial resources that are
restricted by law or contractual agreements to specific
purpose (s) and special revenue funds exist for the life of
restriction.
 For example, they may be used to account for federal
(state) grants which are restricted to account operating
activities of libraries and other services supported by
special taxes.
 Special Revenue Funds are needed when legal or policy
considerations require separate funds to be created for
current purposes other than those served by
proprietary or fiduciary funds.
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 Accounting for General Fund
 The General Fund account is used for unrestricted resources
and exists from inception of the government throughout the
government`s life unlike that of special revenue funds.
 It receives a greater variety of revenues than any other funds.
 It also covers a wide range of activities than any other funds.
 Unique aspects of the general fund
1. Number of general fund-IPSAS requires that there be one
and only one general fund.
2. Measurement focus and basis of accounting- current
financial resources and modified accrual basis of accounting
3. Budgetary integration.
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 BUDGETARY AND PROPRIETARY ACCOUNTS
A. BUDGETARY ACCOUNTS: They are different from proprietary
accounts in which they are used to record the amount of and
type of resources to be received and expended for a specified
period of time.
General ledger budgetary control accounts include
I) Estimated revenues
II) Estimated other financing sources
III) Appropriations
IV) Estimated other financing uses
V) Budgetary fund balance
VI) Encumbrances
And related Operating Statement control accounts include:
VII) > Revenue
VIII) > Other financing sources
IX) > Expenditures
X) 01/30/2024
> Other financing uses have been discussed in detail 5
 I. Estimated Revenue

 It used to record the amount of resources anticipated to

be recognized as revenue for a given fiscal period.
 The major revenue source classes commonly used are:
Taxes ,Special Assessments, Licenses and Permits,
Intergovernmental Revenues, Charges for Services, Fines
and Forfeits & Miscellaneous Revenues (including
interest earnings, rents and royalties, contribution in lieu
of taxes from the government`s enterprise fund activities,
contributions and donations from private enterprises).
 These accounts have a normal balance of debit side.

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 C O N ’D

A) Classification of Revenues:
• The primary classification of government revenues is by fund.
Within specific revenues may be classified by sources.
• There are seven sources:

i)Tax revenues:
•Tax revenues constitute the large portion of governmental
revenues and are compulsory or obligatory.
•Classified in to three categories.
– 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). 7
 Cont.….

ii) 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.
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 Cont.….

iii) 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.
iv) 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.
A. Capital grants are restricted by the grantor for the acquisition
or construction of fixed assets.
B. All other grants are considered operating grants.
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 Cont.…
V) 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, tuition fees etc.
vi)Fines and forfeits: Forfeits 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; Forfeitures of amounts held as a
security against loss or damages and Penalty of any sort.

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 Cont….
vii) Miscellaneous revenues: They include all
revenues other than the above six categories of
revenues, such as: Interest earnings on temporary
investments; Rent ; Compensation for loss of fixed
assets; Contributions from public enterprises;
Contributions from private sources; Contributions
from donors, and others.

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 II. Estimated other financing sources

It used to record estimated other financing

sources, inter fund transfers in and debt issue
proceeds.
This category describes financial resources that
are non-revenue receipts, but are treated as
revenue to an individual fund.
It includes the sale of bonds, sale of capital assets,
and inter-fund transfers in.
These accounts have a normal balance of debit
side.
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 Cont…

III. Appropriations:
 It used to record the amount of resources anticipated to be
recognized as expenditure for a given fiscal period.
 It is the total amount of expenditure authorized for a given
fiscal period
 They have a normal balance of credit side.
IV. Estimated other financing uses
 It used to record estimated other financing uses like inter-
transfer out.
 They have a normal balance of credit side
v. Encumbrances
 Estimated amount recorded for purchase order, contracts, or
other expected expenditures chargeable to an appropriation.13
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 B: PROPRIETARY ACCOUNTS/ REVENUE ACCOUNTS

 They are different from budgetary accounts in

which it used to record actual transactions.
I. Balance sheet
II. Operating statement
I. Balance Sheet Accounts
1. Assets
2. liabilities
3. Fund balance
3.1 Reserved Fund balance
3.2 Unreserved fund balance
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 Cont.…

 Reserved fund balance account

 It is the account used to disclose the amount of
fund equity reserved (not available for
appropriation) for certain governmental activities
in the coming year.
Unreserved fund balance account
 It is the account used to disclose the amount of
fund equity, which is, unreserved (available for
appropriation, together with the revenue and
transfers) for certain governmental activities in the
following accounting period.
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 Cont’d…
II. Operating statement accounts
1.Revenue:Revenue refers to an increase in fund
financial resources other than from inter-fund
transfers and debt issue proceeds.
2.Other financing source: It refers to an increase
in fund financial resources as a result of inter- fund
transfers and debt issue proceeds.
• It is proceeds from issuance of long-term debt
and receipt of inter-fund transfers.

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 Cont’d…

3.Expenditures:
 It defined as decreases in fund financial resources other
than through inter fund transfers.
 It represents the cost to purchase goods and services but
expense represents the cost of goods or services consumed
 It is the term that replaces both the terms costs and
expenses used in profit seeking organizations
4.Other financing uses:
 It defined as decreases in fund financial resources
as result of inter fund transfers.
 It refers to inter fund transfers out
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 Budgetary Accounts Operating Statement Accounts
Cont..
Account Title Normal Balance Account Title Normal
Balance

Estimated Revenues Debit Revenues Credit

Estimated Other Debit Other Financing Credit

Financing Sources Sources

Appropriations Credit Expenditures Debit

Estimated Other Credit Other Financing Debit

Financing Uses Uses

Encumbrances Debit

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 4.1.2 Illustrative Journal Entries: Recording Transactions during the Fiscal year

A) Recording the Budget

 A budget should be recorded in the account of
each fund for which a budget is legally adopted.
 The beginning of the budget period, estimated
revenue control account is debited for the total
amount of revenues expected to be recognized,
as provided in the revenues budget.
 and the limitation of spending or authorized
expenditures will be recorded with a credit in the
appropriations control account.
 Estimated revenue is debited, Appropriations is
credited, and fund balance is debited or credited
for the difference.
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Recording the Budget: Budgetary entry:
Estimated Revenues xxx
Estimated Other Financing Sources xxx
Appropriation xxx
Estimated Other Financing Uses xxx
Fund Balance xxx
 Example: Bishoftu Town Council approved revenue
budget of Br 3,986,000 and appropriation budget of Br
4,180,000.
Record journal entries:
 General Ledger
General Fund: Debits Credits
Estimated Revenues .............3,986,000
Fund Balance ...........................194, 000
Appropriations ......................4,180,000
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 Cont.…

Illustration: Assume the following are the amounts that

have been legally approved as the budget for the general
fund of a certain governmental unit for the fiscal year
ending December 31, 2020.
Estimated revenue
Taxes ----------------------------- 882,500
Intergovernmental revenue ---- 200,000
License and permit ---------------195,000
Total -------------------1,277,500
Appropriations
General gov’t -------------1,150,000
Public safety -----------------212,000
Total ------------------------1,362,000
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 Cont.…
Estimated other financing uses (EOFU)
Operating transfer out to other funds -------274,500
Required: Show in general form the entries that would be
necessary to record the budget assume it is legally
approved at the beginning of the year.
Estimated revenue ----------------------------1,277,500
Fund balance ------------------------------1,277,500
(To record general ledger)
Fund balance ----------------------------1362,000
Appropriation ----------------------------1,362,000
(To record the general ledger)
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 Cont…

Fund balance ------------------------274,500

EOFU -------------------------------------274,500
Combined entry
Estimated revenue ----------------------1,277,500
Fund balance ----------------------------- 359,000

Appropriations ----------------------1,362,000
EOFU-------------------------- 274,500

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 Cont.…

 If estimated revenue is greater than appropriation, then

there is a budgetary surplus and the fund balance account
will have a credit balance.
 If the reverse situation exists there is a budgetary deficit
and the fund balance account will have a debit balance.
 The “Estimated Revenue” ledger account is known as
potential asset, because it reflects revenue to be received
during the fiscal period. On the other hand, the
“Appropriations” ledger account is considered as potential
liabilities, because it reflects the legislative body’s
commitment.
The major reasons for recording the budgetary entry are:-
1. Recording the budget initiates the accounting process for
each funds
2. Recording the budget facilities the preparation of financial
01/30/2024 24
statement that compare actual amount of revenue and
 B. Accounting for Encumbrances and Expenditures
 An encumbrance is an estimated amount recorded for purchase
orders or contracts.
 Encumbrance accounts are affected when an order is placed and
when the goods or services are received.
 Recording encumbrance helps the one managing the finances
to know that money has been committed to some purpose and is
no longer available for expenditure.
 There is often a delay between placing the purchase order and
receiving the goods ordered.
1. Encumbrance xxx
Reserve for Encumbrances xxx
2 .Reserve for Encumbrances xxx
Encumbrance xxx
3 . Expenditure xxx
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Vouchers Payable xxx
 Cont.…

Example : Assume that a purchase order is written

for Br.20, 000 on TIKIMIT 20, 2007.Later, on
HIDAR 10, 2007, the actual invoice is received
with the delivery in the amount of Br.18, 250. The
entry to record this transaction is:

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 Cont…
 When enacted into law, an appropriation is a legal
authorization for administrators to incur on behalf of the
governmental unit liabilities in the amounts specified in the
appropriation ordinance or statue, for the purposes set forth
in that ordinance or statue, during the period of time
specified.
 An appropriation is considered expended when the
authorized liabilities have been incurred. Because penalties
are imposed by law on an administrator who incurs
liabilities for any amount in excess of that appropriated.

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 C. Recording payment of liability
 When general fund pays its liabilities, it is recorded as any ordinary
liability but note that it is only short-term liability.
Illustration
Assume the fund have the following outstanding liability and
consequently paid its liability from its balance. Record the journal
entry in the fund and in government wide book.
Vouchers Payable . . . . . . . . . . . . . . 339,700
Due to Other Funds . . . . . . . . . . . . 249,750
Due to Federal Government . . . . . . . 90,000
Solution:
General Fund:
Vouchers Payable . . . . . . . . . . . . . . 339,700
Due to Other Funds . . . . . . . . . . . . 249,750
Due to Federal Government . . . . . . . 90,000
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Cash . . . . . . . . . . . . . . . . . . . . 679,450
 Accounting for Interfund Transactions and
Transfers
1. Quasi external transactions- involve the sales
and purchases of goods and services between two
funds. These are transactions result in:
 Revenues being recognized in the fund financing
by provider department and
 Expenditure being recognized in the fund
financing by department receiving the goods or
services.

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 Accounting for Inter fund Transactions and
Transfers (Interfund Activity)
A. Reciprocal Interfund Activity
1. Interfund Services Provided and Used – Internal
exchange transactions which involve the sales and
purchases of goods and services in a reciprocal
exchange between two funds are termed
interfund services provided and used in GASB
Statement No. 34.
2. Interfund Loans – are sometimes made from one
fund to another with the intent that the amount
be repaid.
B. Nonreciprocal Interfund Activity
1. inter fund transfer
2. Reimbursment
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 Cont..

Example: If a car repair of birr 2,000 was done by internal

service fund for which the general fund was responsible.
GF: Expenditure ---------2,000
Due to ISF -------------------------2,000
ISF: Due from GF -----------2,000

Revenue ---------------2,000
2. Inter fund loans - are sometimes made from one fund to
another with the intent that the amount be repaid.
 If the loan must be repaid during the current year or soon
thereafter, the lending fund should record a current
receivable, and the borrowing fund should record a
current liability.
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 Con…
Example : Assume that the General Fund makes a short-
term loan in the amount of $100,000 to the internal service
fund.
General Fund:
Inter fund Loans receivable Current 100,000
Cash 100,000
Internal Service Fund:
Cash 100,000
Inter fund Loans PayableCurrent 100,000

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 Cont.…

3. Operating transfers and residual equity transfers:

Operating transfers and residual equity transfers, which were
reported in two different ways in governmental fund
operating statements.
a. Operating transfers: are recurring or routine transfers
of resources from one fund to other funds.
 They are not revenue or expenditures but other financing
sources for the receiving fund and other financing use for
the paying fund.
 It is shifting of resources from one fund to other fund.

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 Cont.…
Example: Assume that the general fund made the budgeted
operating transfers to a debt service fund for the payment of
the debt services in the amount of birr 150,000.
Required: prepare the journal entry for general fund and debt
service fund.
Operating transfer out to DSF ------ 150,000
Cash -----------------------------150,000
(For general fund)
Cash --------------------------150,000
Operating transfer in from general fund ----150,000

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 b. Residual equity transfers
It is non-routine transfers from an existing to
establish a new fund.
The creation of a fund by transfer of assets
and/or resources from an existing fund to a
new fund, or transfers of residual balances of
discontinued funds to another fund, results in
the recognition of other financing sources
rather than revenue by the new fund and
other financing use rather than expenditure
by the transferor fund.
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 Cont.…

Example: Assume that the general fund made a permanent

transfer of birr 120,000 to establish an internal service fund.
Required: prepare the journal entry for the general fund and
internal service fund.
Equity transfer out to ISF ------------120,000
Cash ---------------------------120,000
(For the general fund)
Cash ------------------------------120,000
Operating transfer in from GF -----------120,000
(For the ISF)

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 4. 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.
 In certain instances, one fund may record as expenditure
an item that should have been recorded as expenditure by
another fund.
 When the second fund reimburses the first fund, the first
fund should recognize the reimbursement as a reduction of
its Expenditure account, not as an item of revenue.
01/30/2024 37
 Cont.…

Example: the general fund might pay birr 4,000 for the total
facilities used by special revenue fund.
Required: prepare the entries to record the reimbursement
GF (1st fund): Expenditure --------------4,000
Cash -----------------4,000
SRF (2nd fund):
Expenditure ------------4,000
Cash ------------4,000
Reimbursement:
Cash--------4,000
Expenditure ---------4,000

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 3.6 FINANCIAL STATEMENTS

A. Balance Sheet
 The interim balance sheet: an interim balance sheet
presents a picture of the fund at a point within the planned
year operations.
 Inclusion of both budgetary (showing the results of budget
transactions) and proprietary (showing actual financial
condition or operations) accounts for the fund helps the
reader analyze the financial position of the fund in a way
that would not be possible without them.
 The format of interim balance sheet for X Governmental
Unit prepared for the first quarter of operation is presented
below

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 Cont…

X Governmental Unit
General Fund
Interim Balance Sheet on March 31, 20xx
Assets and Estimated Revenues
Cash..........................................................................................................................Br. xxx
Accounts Receivable.........................................................................xxx
Allowance for Uncollectible Account Receivable.......................... (xx) xxx
Estimated Revenues...........................................................................xxx
Less: Revenues.................................................................................. (xx) xxx
Total Assets & Estimated Revenues Br. xxx
Liabilities, Appropriations, Reserves and Unreserved Fund Balance
Liabilities:
Vouchers Payable………………………………………………... xx
Due to Internal Service Fund…………………………………….. xx xxx
Appropriations:
Appropriations...............................................................................xxx
Less: Expenditures..........................................xx
Encumbrances........................................xx (xx) xxx
Reserve for Encumbrances......................................................................................... xxx
Fund Balance.............................................................................................................. xxx
Total01/30/2024
Liabilities, Appropriations, Reserves and Unreserved Fund Balance Br. xxx 40
CHAPTER END
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