Government entities report equity in governmental and trust funds as fund balance.
A fund balance operates similar to savings accounts and is the difference between governmental fund assets and liabilities reported on the balance sheet. Governmental and nonprofit accounting both uses the concept of fund accounting. In fund accounting, the entity is divided into subsets or funds, each with its own self-balancing set of accounts. A look at the various types of funds can lead to a better understanding 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.
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. Items included in the general fund would be police, fire or parks funded from general sales, income or property tax.
Special revenue funds account for transactions that take place when there are restrictions on revenue sources. Common examples of these include street and road maintenance, and construction. Capital projects funds are used to account for monies set aside for construction of buildings and infrastructure. Debt service funds are used for the accumulation of monies to make required payments on long-term obligations, such as bonds or capital leases.
Governmental funds differ from conventional, for-profit accounting because they use a financial measurement focus and are modified accrual, as opposed to full accrual basis of accounting. Governmental funds...