What Is Fund-Based Accounting?
Fund-based accounting is a specialized method public sector entities use to match revenues and expenditures in separate categories called fund accounts. Federal, state, county and local government agencies use fund-based accounting to track and control mandated, regulated, earmarked and budgeted revenues and expenditures and to provide good stewardship of public funds.
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Fund Structure
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A fund is a self-balancing set of accounts used to record revenues and all related expenditures, liabilities and resulting equity for a specific activity. It is designed so an informed reader can quickly determine revenues received and receivable, expenditures paid, expenditures remaining to be paid, and the remaining balance in the fund. Each activity is set up as a separate set of fund accounts based on the limitations, restrictions and regulations governing the activity. Each fund has its own general ledger. In practice, each fund operates as if it were a separate entity. At the end of a reporting period, all funds are presented in a comprehensive financial statement to report the overall performance of the agency or unit.
General Purpose Fund
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General funds normally control funds for the day-to-day operation of a public agency or unit. This includes wages, maintenance, general office expenses and supplies chargeable to keep the operation on track and within budget. Appropriations for general funds may also include oversight of specific funds for which an agency or unit is responsible.
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Specific Purpose Fund
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Specific purpose funds may be the result of regulations, referendums, legislation or other specifically mandated action of appointed or elected officials or voters. These special funds usually have a time limitation or at least a targeted completion date. Each specific purpose fund exists only for the life of the project. The identifiable activities require specific control procedures and a separate chart of accounts that may be unique to the project.
For example, if a city government approves and appropriates funding to build a new city hall, all of the activities related to the project are tracked through fund-based accounting. Theoretically, if one or more areas of the project go over budget, city planners can quickly spot the problems and adjust to keep the project within the stipulated budget, providing fiscal accountability.
Performance Measurement
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Fund-based accounting reports provide a tool for performance measurement against an allocated budget and a comparison between the budget and actual fund revenues and expenditures, The Governmental Accounting and Standards Board (GASB) provides the framework for fund-based accounting standards and reporting of not-for-profit public entities.
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