A look at the various types of funds can lead to a better understanding in order to grasp the impact this has on accounting disciplines. The funds are grouped into fund types, of which there are three: governmental, proprietary and fiduciary. There are also account groups, but account groups are not funds because they do not have transactions in the ordinary course of business. Instead, they, in effect, holding places for non-liquid balance sheet items, such as fixed assets and long-term debt.

Governmental Funds
The first example of a governmental fund is the "General Fund" where all transactions not required to be in any other fund are reported. Usually, departments funded from an unrestricted pool of revenues would be accounted for in the general fund. To put this into perspective, police, fire or parks funded from a general sales, income or property tax would be reported in the general fund.

Special Revenue funds account for transactions that take place when there are restrictions on revenue sources. Common examples of these include street and road funds in which gasoline tax revenues are accounted. The gas taxes are typically restricted to street and road maintenance, and construction.

Capital project funds are used to account for monies set aside for construction of buildings and infrastructure. When monies - typically bond proceeds - are received for specific projects, they are recognized in and disbursed from a capital projects fund.

Debt service funds are used for the accumulation of monies to make required payments on long-term obligations, such as bonds or capital leases. As a practical matter, common source documents include bond trustee statements. Monies used to pay for the bonds can be revenues, such as property taxes earmarked specifically for the bond issue or from transfers from other funds. One example might be a transfer from the Highway Fund (a special revenue fund) to pay road improvement bonds.

Governmental funds differ from conventional, for-profit accounting because they use a financial measurement focus and are modified accrual, as opposed to a full accrual basis of accounting. Accordingly, governmental funds do not have fixed assets in them and they do not show long-term debt. Likewise, they do not reflect depreciation.

Proprietary Funds
The next fund type is proprietary fund type. Propriety funds are closest to FASB-based accounting within the governmental reporting model. There are two types of proprietary funds, enterprise and internal service.

Enterprise funds are employed when user fees are the major means of cost recovery. The most common example are water and/or sewer (more properly called wastewater) funds.

Internal service funds are used to account for central cost centers within a governmental unit. A common example is a central fleet facility that might maintain police vehicles, garbage trucks and other government vehicles. Charges would be made to the appropriate fund and department to recover costs.

Because fees and charges, not taxes, are the primary source of cost recovery in proprietary funds, full accrual accounting, including the use of depreciation, is used within the proprietary funds. And, unlike governmental funds, proprietary funds contain all assets, including fixed assets, and long term liabilities within the funds. Likewise, depreciation of fixed assets is recorded and depreciation expense is shown in the operations statement.

Fiduciary Funds
Like special revenue funds, fiduciary funds are used for assets subject to outside restrictions. Primarily, there are three types of fiduciary funds:

Generally fiduciary funds are the result of a donation by an outside entity or if the government is simply holding the assets with limited discretion on their use.

Trust funds are classified as expendable or non-expendable. An expendable trust is one whose corpus, or principal, can be used for operating or capital outlays. When a fund is non-expendable, only investment earnings can be expended. The corpus is left intact to assure perpetual revenue generation.

Conversely, non-expendable trust funds are treated more like proprietary funds. They are reported using full accrual accounting and a financial measurement focus. Their operations also are reported on the same statements as proprietary funds.

Another example of a fiduciary fund is an agency fund, which shows only asset and liability accounts. There are no operations reported, since the reporting entity is only holding the assets for others it has no equity accounts.

The implementation of GASB #34 will greatly limit the use of agency funds.

Account Groups
As stated earlier, the governmental fund types reflect neither fixed asseor long-term liabilities. There are two account groups that are used to reflect these items. The general fixed asset account group (GFAAG) appears on the balance sheet, but not the operations statement. It consists of the fixed assets as debits. The offsetting credit is titled "Investment in Fixed Assets." Although it is permissible to do reflect accumulated depreciation in the GFAAG, it is not commonly done.

The other account group for long-term debt is the general long term debt account group (GLTDAG). Like the GFAAG, the group only appears on the balance sheet and not on the operations statement. The credits consist of the liability accounts for the debts, such as bonds payable. There are two offsetting debit accounts, "Amount available in debt-service fund" and the "Amount to be provided."

Depending on the circumstances, government transactions are reported differently than one another. Those funded with taxes are reported much differently than those funded from user fees. Activities funded from user fees are treated much more like private sector business, which are also funded with user fees.