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Last month a local government collected property taxes, collected gas taxes reserved for highway expansion, and received a monetary contribution from an estate. The contribution is to be held intact, but earnings are reserved for the purchase of a special collection of historical books for the public library. What governmental funds should be used to account for these items?
Indicate the government funds that should be used to account for property taxes, gas taxes, earnings reserved for purchase of special books for public library.
Explanation of Solution
Governmental funds: This is the fund category which includes governmental activities in the government-wide financial statements, which evaluate the fiscal accountability of the resources raised and expended according to the budgetary provisions. Governmental funds includes five types of funds. They are General Fund, special revenue funds, debt service funds, capital project funds, and permanent funds.
General Fund: The chief operating fund of state and local government used to record the departmental operating activities and government support services is referred to as General Fund, or General Operating Fund, or General Revenue Fund. The activities recorded in General Funds are police, fire, public works, recreation, education, culture, social services, city office, finance, personnel, and data processing.
Special revenue funds: The taxes, grant revenues, or gift taxes that are restricted by external providers for specific operating purposes like maintenance of bridges, or roads, are referred to as special revenue funds.
Debt service funds: These are the funds that are segregated by the state government to finance the principal and interest payments of outstanding bond obligations, or other long term liabilities.
Capital project funds: The funds from tax or grants or proceeds from bonds that are created to facilitate the capital projects like purchase of capital assets like buildings, parks, highways, bridges, or make payments to contractors, architects, engineers, are referred to as capital project funds.
Permanent funds: These are the funds that are instructed by donors to either invest or preserve their principal contributions, and account those as permanent endowments, but could use the earnings on such contributions for any public programs, or government plans, like maintenance of cemeteries, parks, libraries, or buildings.
The government funds that should be used to account the given revenue in the following ways:
- The property taxes should be accounted for as General Fund.
- The reserved gas taxes should be accounted as special revenue fund.
- The earnings reserved for purchase of special books for public library should be accounted for as permanent funds.
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