Governmental funds account for the operations and financing activities of a government. There are five funds that make up governmental funds: general fund, special revenue fund, debt service fund, capital projects fund and permanent fund. Governmental funds use the modified basis of accrual accounting.
These are the five types of Governmental Funds:
- Special Revenue Funds are set up to account for revenues that are derived from specific taxes i.e. tax on gasoline, or set aside resources which are committed or restricted to finance a particular activity. The principal and interest derived from these taxes are not restricted and can be expended freely.
- Debt Service Fund is a fund that supports the other four governmental funds. It pays off all the debt of all the other governmental funds, only.
- Capital Projects Funds are set up to finance the purchases, acquisition and construction of major capital facilities. They are financed by issuing bonds.
- Permanent Funds are established to account for the resources set aside to be used specifically for the benefit of the government’s programs. Only the interest is available to be used.
- General Funds are used to account for all operations of a governmental entity that are not labeled and classified as any of the other funds. Out of the five governmental funds, this fund is very important.
Governmental fund balances are classified into five different classes. Each class represents how the resources can be expended. They are also referred to as constraints. These constraints limit the usage of the resource.
