Government Funds: Definition, Types, Accounting

The accounting for government funds differs from the process for other entities. Usually, this process falls under the accounting standards for government bodies. Government funds may include various types as well. Before discussing the types and accounting of government funds, it is crucial to discuss them.

What are Government Funds?

Government funds refer to the money held by government bodies. These funds come from collections through taxes and other income sources. Usually, governments generate these from the public. Most public entities use these funds to operate and run their policies. In that regard, government bodies run similar to other businesses and entities.

Government funds are the primary income source for government bodies. These bodies also establish limits and purposes for these funds. Usually, government institutions set various targets and objectives for a specific period. They use government funds to reach those targets. On top of that, they may also set targets for those funds. Then, they complete those targets through collections from the public.

Government funds also come with accountability. Government bodies must account for these funds and report them to the public. Usually, each government institution must present its performance for those funds separately. The government as a whole also holds accountability for how every institution uses those funds.

What are the types of Government Funds?

Government funds come in five types. The differences between these types come from their income sources, expenses, and purpose. Primarily, they include the following.

General funds

General funds refer to government funds used by a government for primary services or activities. The term ‘general’ in the name shows that these funds do not have a specific purpose. Practically, they include funds that do not fall into the other categories.

Permanent funds

Permanent funds include government funds that government uses to generate money. They utilize these funds to receive pay entities through qualification or agreement. Usually, these funds consist of principal amounts, which are permanent. Government bodies use the earnings from these funds only.

Capital Project funds

Governments also undertake various capital projects for public welfare. Capital project funds include resources that they hold to construct different capital-base projects. Usually, it consists of funds that government expects to spend on creating infrastructure.

Debt service funds

Debt service funds refer to government funds that government holds to settle debts collected from various sources. Essentially, governments create these funds intending to repay long-term debts when the repayment arises. These funds include both interest and principal amounts.

Special revenue funds

Special revenue funds include funds collected from specific sources. Usually, these funds also come with restrictions on their usage. Governments use special revenue funds to finance specific projects. They keep these funds separate to track those projects better.

What is the accounting for Government Funds?

The accounting for government funds is straightforward. Any income into these funds falls under income for the entity. Therefore, they can use the following journal entries to record these amounts.

Dr Bank/Cash
Cr Income/Revenues

Government bodies then use these funds in different areas. This spending falls under expenses for the entity. Like other bodies, they must account for it accordingly. They use the following entries to record the expenditure.

Dr Expenditure
Cr Bank/Cash

Conclusion

Government funds include funds collected from the public held by a government entity. The entity must record and report these funds to the public. Similarly, these funds fall under several categories. The accounting for government funds is also straightforward. This process is similar to other entities. However, the reporting criteria for these funds are stricter.

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