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**2-4 Matching Funds and Identifying Characteristics with Fund and Government-wide Financial Reporting Categories**

For each fund or government-wide category listed in the left-hand column, choose the letter(s) of the applicable fund type or characteristic in the right-hand column. Multiple letters may apply to each category.

| Fund or Government-wide Category | Fund Type or Characteristic |
|----------------------------------|-----------------------------------|
| 1. Governmental funds | a. Operational accountability |
| 2. Proprietary funds | b. Modified accrual |
| 3. Fiduciary funds | c. Agency funds |
| 4. Governmental activities, government-wide | d. Statement of cash flows |
| 5. Business-type activities, government-wide | e. Fiscal accountability |

**2-5 Matching Funds with Transactions**

Choose the letter of the sample transaction in the right-hand column that would most likely be reported in the fund listed in the left-hand column.

| Fund | Example |
|---------------------|-------------------------------------------------------------------------|
| 1. Agency | k. Taxes collected on behalf of another governmental unit. |
| 2. Capital projects | a. Construction of highways, bridges, or parks. |
| 3. Debt service | j. Principal and interest payments on general long-term debt. |
| 4. Enterprise | g. Costs of operating a municipal swimming pool. |
| 5. General | b. Administrative expenses of the city manager's office. |
| 6. Internal service | d. Costs of a central purchasing and warehouse function. |
| 7. Investment trust | e. Assets held for external government participants in the government's investment pool for the purpose of earning investment income. |
| 8. Pension trust | i. Assets held in trust to provide retirement benefits for municipal workers. |
| 9. Permanent | f. Gifts in which the principal must be invested and preserved but the investment earnings can be used for public purposes. |
| 10. Private-purpose trust | c. Gifts in which the principal must be invested and preserved but the investment earnings must be used to provide scholarships to children of police officers who died in the line of duty. |
| 11. Special revenue | h. Grant revenues restricted for particular operating purposes. |

Answer :

Understanding Fund Accounting and Financial Reporting Categories

Fund accounting is a system used by governments and non-profit organizations to track and report on resources whose use is restricted by donors, grant authorities, or governing agencies. It divides financial data into funds or accounts that are categorized by the source of the resources and their intended use. When dealing with government-wide and fund-specific reporting, it's important to understand the different categories and how they relate to various fund types or characteristics.

2-4 Matching Funds and Identifying Characteristics

Here's a breakdown of how specific fund types or characteristics relate to different financial reporting categories:

  1. Governmental funds

    • b. Modified accrual
    • e. Fiscal accountability

    Governmental funds use the modified accrual basis of accounting, focusing on fiscal accountability.

  2. Proprietary funds

    • a. Operational accountability
    • d. Statement of cash flows

    Proprietary funds operate more like private business enterprises, focusing on operational accountability and are required to present a statement of cash flows.

  3. Fiduciary funds

    • c. Agency funds

    Fiduciary funds include types such as agency funds, which are used to account for resources held for others.

  4. Governmental activities, government-wide

    • a. Operational accountability

    These activities include all governmental funds but reported in a manner that focuses on operational accountability.

  5. Business-type activities, government-wide

    • a. Operational accountability

    Similar to proprietary funds, these activities focus on operational accountability.

2-5 Matching Funds with Transactions

Here is how various types of funds relate to specific transactions:

  1. Agency

    • k. Taxes collected on behalf of another governmental unit.

    Agency funds are used for resources that a government holds for others, like taxes collected for other governments.

  2. Capital projects

    • a. Construction of highways, bridges, or parks.

    Capital project funds are for long-term investments in infrastructure projects.

  3. Debt service

    • j. Principal and interest payments on general long-term debt.

    Debt service funds are used to account for the repayment of principal and interest on long-term debt.

  4. Enterprise

    • g. Costs of operating a municipal swimming pool.

    Enterprise funds account for services where the user fees cover the cost, resembling private sector business operations.

  5. General

    • b. Administrative expenses of the city manager's office.

    General funds account for basic governmental services and activities not specifically identified in other fund classifications.

  6. Internal service

    • d. Costs of a central purchasing and warehouse function.

    Internal service funds are used for operations that provide goods or services to other government departments.

  7. Investment trust

    • e. Assets held for external government participants in the government’s investment pool for the purpose of earning investment income.

    Investment trust funds are for investments managed on behalf of other entities.

  8. Pension trust

    • i. Assets held in trust to provide retirement benefits for municipal workers.

    Pension trust funds account for resources for employee retirement benefits.

  9. Permanent

    • f. Gifts in which the principal must be invested and preserved but the investment earnings can be used for public purposes.

    Permanent funds are used to report resources legally restricted so that only earnings (not principal) may be used.

  10. Private-purpose trust

    • c. Gifts in which the principal must be invested and preserved but the investment earnings must be used to provide scholarships to children of police officers who died in the line of duty.

    Private-purpose trust funds account for resources held in trust for private purposes.

  11. Special revenue

    • h. Grant revenues restricted for particular operating purposes.

    Special revenue funds account for specific revenue sources that are legally restricted to expenditure for specific purposes.

By understanding these categorizations, those studying governmental accounting can better comprehend how different funds operate and how transactions are reported in governmental or fund-based financial reporting.

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