CHAPTER THREE

The General Fund and Special Revenue Funds

Introduction
Every state and local government must have a general fund that is used to account for all financial
resources, except for those resources that must be accounted for in a different fund. A government
maintains only one general fund. This unit will discuss: The nature and purpose of the general and
special revenue funds; Revenues and expenditures recognitions; and Examples of common journal
entries.

3.1 The General Fund

3.1.1 Nature and Purpose

Every governmental unit must establish a General Fund. The General Fund is used to account for
most of the current operating revenues and expenditures of the unit including certain capital outlays and
certain debt service expenditures. All tax revenues and other receipts and expenditures not specified by
law or contractual agreement to another fund type are accounted for in the General Fund. This includes
revenues and expenditures for federal programs. The General Fund is usually the largest and most
important of the funds maintained by governmental units.
The General Fund typically has a greater number and variety of revenue sources than other funds and
its resources finance a wide range of governmental activities. The General Fund is established at the
inception of the governmental units and continues to exist throughout the life of the governmental
system.

3.1.2 Number of Funds

The governmental units will report only one General Fund

3.1.3 Basis of Accounting and Measurement Focus

The focus of General Fund accounting is sources and uses of “available spendable resources” rather
than upon net income determination. The General Fund uses the modified accrual basis of accounting.
Therefore, revenues are recognized when they are both measurable and available. This fund also uses
the flow of current financial resources measurement focus.
The General Fund contains only “current” assets and “current” liabilities. “Current,” meaning the asset
is expected to be received or the liability paid within one year from the Balance Sheet date. General
Fund assets and liabilities having a life greater than one year are reported on the Government wide
statements.
Claims against the governmental unit should be recognized as General Fund liabilities when the claims
are scheduled or applicable for liquidation with existing resources.
The General Fund has many sources of revenue and many types of expenditures, and hence, a need for
numerous general ledger accounts. Excessive general ledger accounts are very inconvenient to work
with. The local and state governmental unit may, therefore, use general ledger control accounts and
subsidiary ledgers.

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3.1.4 Accounts and Transactions

A. Revenues and Other Sources of Financing

Revenues represent increases in current financial resources. Proceeds from issuance of long-term debt
and receipt of inter fund transfers are not classified as revenue. Instead, these items are classified as
“other sources of financing.” General Fund revenues are susceptible to accrual when they are both
measurable and available. Revenues are measurable when they can be reasonably estimated. In order
to be available, revenues are estimated to be collected during the current budgetary period or after the
end of the period, but in time to pay liabilities outstanding at the close of the budgetary period. When
amounts are both determined to be measurable and available, we classify them as “revenue accruals.”
Do not record the item as revenue in the General Fund if the “measurable” and “available” conditions
are not met. Many general fund revenues are measurable, such as taxes, grants and fees.
Classification of Revenues
The primary classification of government revenues is by fund. Within specific revenues may be
classified by sources. Generally, there are six sources. These are explained under:
i. Tax revenues
Tax revenues constitute the large portion of governmental revenues and are compulsory or obligatory.
In general, tax revenues may be classified in to three categories. These are direct taxes (personal
income tax, business income tax, tax on dividend, rental income tax and miscellaneous income taxes),
indirect taxes (turn over tax, value added tax, excise tax) and taxes on foreign trade (custom duty on
imported goods and services, etc).
ii. Licenses and permits
They include those revenues collected by the governmental unit from individuals or business concerns
for various rights or privileges granted to them, such as business license, driving license, building
permit, etc.
iii. Intergovernmental Revenues
They include grants, entitlements, and shared revenues. A grant is a contribution or gift of cash or other
assets from other governmental unit to be used or expended for specific purpose, activity or facility.
There are two types of grants, namely capital grants and operating grants. Capital grants are restricted
by the grantor for the acquisition or construction of fixed assets. All other grants are considered
operating grants.
iv. Charges for services
They include revenues collected by the government from the public for the services rendered to them.
These include revenue from courts, receipts from parking lots, library use fees, tuition fees etc. Library
use fees do not include fines.
v. Fines and forfeits
Forfeiture is the automatic loss of cash or other properties as a punishment for not complying with legal
provisions and as compensation for the resulting damages, or losses. Fines and forfeits include; Fines
and penalties for commissions of statutory offences; Fines and penalties for neglect of office duties;
Library fines; Forfeitures of amounts held as a security against loss or damages and Penalty of any sort.
Penalties levied on delinquent taxes (past due taxes) are not considered as fines, rather are considered
as tax revenues.
vi. Miscellaneous revenues

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They include all revenues other than the above six categories of revenues, such as: Interest earnings on
temporary investments; Rent and royalties; Compensation for loss of fixed assets; Contributions from
public enterprises; Contributions from private sources; Contributions from donors, and others.
Budgetary Accounts
Budgetary accounts are those accounts that affect budgetary operations and conditions. Budgetary
accounts include:
- Estimated Revenue- It is used to record total amount of revenue expected to be recognized
(from revenue budget).
- Appropriations- which are used to record budgeted expenditures.
- Encumbrances - which are used to record estimated amount of purchase orders or contracts.
- Estimated other financing sources- are used to record estimated other financing sources.
- Estimated other financing uses- which are used to record estimated other financing uses.
In order to facilitate the preparation of financial statement that show budget and actual amounts, the
accounting systems of funds which budgets are required by law should incorporate budgetary account.
Journal Entries to record the various items:

1) Recording the Budget: Budgetary entry:

Estimated Revenues xxx
Estimated Other Financing Sources xxx
Appropriation xxx
Estimated Other Financing Uses xxx
Fund Balance xxx

Example 1: Assume that a given governmental unit has made the following budget estimate for its
general fund:
Estimated Revenues: Appropriations:
Taxes 780,000 Estimated Other Financing Sources:
Licenses and permits 256,000 Transfer from other funds 115,000
Charges for services 184,000 Bond issue proceed 115,000
Health and Welfare 270,000
General Government 590,000
Public safety 440,000

Required: Prepare a budgetary entry.

Estimated Revenue 1,220,000
Estimated Other Financing Sources 230,000
Appropriations 1,300,000
Fund Balance 150,000
Note that budgetary surplus is said to exist when budgeted sources exceed budgeted uses. On the other
hand, budgetary deficit is said to exist if budgeted uses exceed budgeted sources.
2. Property Taxes and Uncollectible
Taxes are a forced contribution on the citizens by the government. There are a number of different
kinds of taxes possible, including property taxes

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Property Taxes should be recorded in the fiscal year, in which they are levied, assuming that they are
also classified as available. Giving a formal notice of a tax to be paid is called a levy.
The governmental unit should disclose the assessment date, levy date, due dates and collection dates of
taxes. Additionally, they must disclose their policy for recognizing property taxes.
State and local governmental units usually do not collect the entire tax levy. Accordingly, the amount
recorded as revenue receivable from taxes often needs to be offset by an allowance for uncollectible
taxes account. Governmental accounting does not recognize a “bad debt expense,” for these
uncollectible, as does private business accounting. Instead, an allowance for uncollectible taxes
account is established in the General Fund by reducing the amount of revenue recognized from taxes.
Example 2: Property taxes of Br. 20,000,000 are levied. Five percent of the levy is estimated to be
uncollectible. The following entry would be made to record the levy:
Property Taxes Receivable-Current 20,000,000
Revenue—Current (Real Estate Taxes) 19,000,000
Allowance for Uncollectible Taxes-Current 1,000,000
Example 3: Assume that Br.16, 000,000 of the tax receivables are collected and Br.750, 000 of the
receivables is now deemed/consider/ uncollectible: the following entry is made to record the collection:
(a) Cash 16,000,000
Property Taxes Receivable-Current 16,000,000
(b) Allowance for Uncollectible Taxes 750,000
Property Taxes Receivable-Current 750,000
Example 4: Assume that the remaining receivable balance is considered delinquent; the journal entry
used to record is as follow:
(a) Property Taxes Receivable-Delinquent 3,250,000 /20000000-
16000000=4000000, 4000000- 750000 =32500000/
Property Taxes Receivable -Current 3,250,000
(b) Allowance for Uncollectible Taxes-Current 250,000
Allowance for Uncollectible-Delinquent 250,000
Change in Estimate
A change in estimate does not require that you restate prior financial statements. Only adjusting entries
to the current year are required. Include an appropriate disclosure concerning the change in estimate in
the financial statements if the effects of the change in estimate are material.
- A particular governmental unit may discover at the end of the accounting period that the
allowance for uncollectible accounts for the current period was overstated or understated. To
record the revised estimate, adjust the allowance and revenue accounts.
- An estimated uncollectible rate could be incorrect for several years, resulting in consistently
overstating or understating uncollectible amounts.
Example 5: The uncollectible account should have been six percent, instead of five percent in
Example 2. The entry to record the revision at the end of the year would be:
Revenue – Current –Property Taxes 200,000
Allowance for Uncollectible Taxes 200,000
(Br. 20,000,000 x 6% = Br. 1,200,000; Br. 1,200,000 – Br. 1,000,000 = Br. 200,000)

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Delinquent Property Taxes
Taxes not paid by the due date on the bill are delinquent. The amount of taxes remaining in “taxes
receivable – current year” should be transferred to “taxes receivable – delinquent.” If you maintain
separate “allowance for uncollectible taxes” by year, then this account should also be transferred from a
current account, to a delinquent account.
Delinquent taxes are usually subject to penalties and interest charges. The cash collection of interest
and penalties is similar to the collection of the property taxes.
Example 7: To record the receipt of interest and penalties:
Cash XXX
Interest and Penalties Receivable – Delinquent Taxes XXX

2) Tax Anticipation Notes Payable

Notes (or warrants) issued in anticipation of the collection of taxes, usually retirable only from tax
collections, and frequently only from the proceeds of the tax levy whose collection they anticipate.
Taxes anticipation notes payable is issued by the governmental unit when expenditures are expected to
be made before major items of revenues are received. The unit borrows in the anticipation of the
collection of taxes in later months and use for the payment of notes. The transaction is recorded as
follows:
Cash xxx
Tax Anticipation Notes Payable xxx
The repayment of the note, with interest, is recorded as follows:
Tax Anticipation Notes Payable xxx
Expenditures (Interest) xxx
Cash xxx

3) Taxpayer-Assessed Revenues & Income Taxes

In the past, accounting standards required that these revenues be recognized on a cash basis, although
many governmental units chose to record these revenues when they were measurable and available.
The Governmental Accounting Standards Board (GASB) Statement No. 22 put an end to this
discrepancy between theory and practice by stating that these taxes must be accounted for using
modified accrual accounting. Therefore, these amounts must meet the definitions of measurable and
available in order to be recognized as revenue. Taxes should be reported net of anticipated refunds to
taxpayers.
The Journal entry to record other taxes:
a) If Business income tax is collected:
Cash xxx
Revenue –B.I.Tax xxx
Note: For all other taxes, when collected, record the entry like the above.
Other Revenues:
For Special assessments, Licenses & Permits, Charges for services, Fines & Forfeits, Miscellaneous
revenues, the journal entry is as follows:
Cash xxx
Revenue – Name xxx

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Grant means a contribution received from another government, which is to be used or expended for a
specific purpose or activity.
Entitlement is the amount of payment a local government receives from another government as
determined by a formula established by law. For example, Basic Education, Special Education,
Transportation.
Before revenue can be recognized, you must evaluate the circumstances surrounding the grant or
entitlement to determine if the measurable and available criteria have been met.
a) State Subsidies
Recognize current fiscal year state subsidies as current revenue, even though the funds will be received
in the subsequent fiscal year.
Example 8: Assume that Br. 50,000 of the current year transportation subsidy was not received as of
the end of the budget period.
State Subsidies Receivable – Transportation 50,000
Revenue – Transportation 50,000
4) Donations
Financial donations are usually recorded on the cash basis because they are not considered measurable
until they are received.
The proper treatment of donated fixed assets depends on the governmental unit’s plans for those assets.
If the unit intends to retain the fixed assets, they are recorded directly in the government wide statement
of net assets, with no effect on the governmental funds. If, however, the unit intends to sell the donated
fixed assets, that unit should record the transaction in one of three ways:
i. If the assets are sold by the end of the fiscal year, report revenue in the operating statement.
ii. If the assets are sold after the end of the budget year, but before the financial statements are
issued, report the fixed assets on the fund’s balance sheet as “assets held for resale” and report
revenue on the operating statement.
iii. If the assets were not sold before the issuance of the financial statements, the assets should be
reported only in the statement of net assets. When they are sold, the unit would report the sale.
Donations are valued at the Fair Market Value of the item at the time of the donation.
Example 9: Assume that a particular governmental unit receives a cash gift of Br. 1,000 from a private
benefactor to be used at the discretion of the higher officials for general operations.
Cash 1,000
Revenue - Contributions and Donations 1,000
(To record receipt of revenue from a donation)
Example 10: Assume that a particular governmental unit receives a gift of land from a donor. An
independent appraiser values the land at Br. 50,000 on the current market.
The land received as donation is sold for 50,000. The entry to record the above transaction is:
a) Land Br. 50,000
Revenue - donations Br. 50,000

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 (To record donated land as revenue)
b) Cash 50,000
Land 50,000
(To record the sale of land)

5) Proceeds From Issuance of Long-Term Debt

When long-term debt is issued and the proceeds are available to the General Fund, you should record
the proceeds as part of “other financing sources.” These proceeds are reported in the General Fund on
the Statement of Revenues and Expenditures, under the “Other Financing Sources” section of the
statement. These proceeds should not be reported under the General Fund’s operating revenues.
Although bond proceeds are reported in the General Fund, the long-term debt is reported in the non-
current liabilities section on the statement of net assets, not in the General Fund.
If short-term debt is issued by the General Fund, i.e. debt to be paid off in one year or less, the debt
liability is recorded in the General Fund because, the payment of the debt will require current
resources.
Example 12: Assume that $10,000,000 of long-term notes is sold and the proceeds are available to the
General Fund: the following entry should be recorded in the general fund;
GENERAL FUND:
Cash 10,000,000
Proceeds from Issuance of Long-Term Debt 10,000,000

B. Appropriations and Expenditures:

Appropriation is the authorization to make expenditure. An appropriation when enacted by law will
have authorization to incur on behalf of the governmental unit expenditures and liabilities for goods or
services.

Expense Vs Expenditure:

Expense: An expense is cost expiration or cost consumption

Ex: supplies purchased are Birr 10,000 and used supplies are 6,000. Expense of supplies are Birr 6,000
because this amount of cost consumption.

Expenditure:
Expenditures are decreases in fund financial resources. This means when fund financial resources are
used or fund liabilities are incurred during a fiscal period, it is called expenditure. Some examples of
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General Fund expenditures are current operations like payment of salaries, Capital outlays like
purchase of capital assets and payment of interest on long-term debt. Depreciation and
amortization are not expenditures within the General Fund.
Expenditures are generally accrued when incurred if the transaction results in a reduction of the
General Fund’s current financial resources. However, expenditures for long-term debt principal and
related interest are recognized when they are due. Expenditures are generally classified by function
and object.
By Function or Program:
General government
Public safety
Health & Welfare
Culture & Recreation
By Object:
Personal services
Other services
Supplies
Capital Outlays
The Journal Entries to record Expenditure:
1. When expenditure is paid
Expenditure Account XXX
Cash XXX
OR
b) Expenditure xxx
Voucher Payable xxx
c) Voucher Payable xxx
Cash xxx
2. When expenditure is due:
Expenditure xxx
Accrued Expenditure xxx
Examples of expenditure items that can be accrued:
1) Salaries and Benefits
Example 1: Assume that there are total salaries and benefits of Br.425,000 paid for the month of June,
2006
Expenditures – Salaries and Benefits 425,000
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 Cash 425,000

Example 2: Assume that there are total salaries and benefits of Br.425,000 approved but not paid for
month of June, 2006
Expenditures – Salaries and Benefits 425,000
Voucher Payable 425,000
Example 3: Interest on short term debt 3,000 incurred but not paid:
Expenditures –Interest 3,000
Interest Payable 3,000
2. Accounting Treatment for Deferred Expenditure: (Insurance Premium, Rent etc)
Insurance Premium
Example 4: Annual insurance premium of Br.12, 000 paid on SENE 1, 2001.
(a) Expenditures 12,000
Cash 12,000
(To record payment of premium)

(b) Prepaid Insurance 11,000*

Expenditure 11,000 (12,000*11/12)
(To record the amount paid in advance as of SENE 30, 2001)
3. Capital Outlays
The General Fund may purchase capital assets, such as land, buildings, and equipment. The general
entries for these transactions are:
GENERAL FUND: Expenditures – Capital Outlay XXX
Cash XXX
The asset obtained is accounted for in the government wide statement of net assets.
Example 6: Equipment worth 250,000 is purchased from General Fund:
Expenditures –Equipment 250,000
Cash 250,000
4. Debt Service Payments
Debt service payments made from the debt service fund should be recorded in the debt service fund.
Debt service transactions are described in detail in the chapter debt service fund of this module.
A state and local governmental unit can appropriate and make certain debt payments from their general
fund. Debt service payments made from the general fund are recorded in the general fund, not the debt
service fund.
Principal and interest payments are recorded when principal and interest payments become due and
payable.
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Example 7: Assume that Br.1, 000,000 of 6% bonds are issued on April 1, 2XX1 and pay interest
semiannually beginning on October 1, 2XX1. A condition of this specific bond is to be maintained
within the general fund. The entry on October1, 2XX1 in the general fund would be:
Expenditures – Interest 30,000*
Cash 30,000
(To record semi-annual interest payment *1,000,000*6%/2)
Example 6: Assume there is no requirement to maintain the bond within the general fund. Funds for
the interest payment are transferred from the general fund to the debt service fund:
GENERAL FUND
Transfer to Debt Service Fund 30,000
Cash 30,000
DEBT SERVICE FUND
(a) Cash 30,000
Transfer from General Fund 30,000
(b) Expenditures – Interest 30,000
Interest Payable 30,000

C. Other Transactions Affecting the General Fund

1) Encumbrances
Encumbrance accounts allow for the recording of legal commitments issued against the appropriation
of a fund. Legal commitments include items such as purchase orders for goods and/or supplies and
contracts with suppliers. Recording encumbrances is essential to keeping expenditures within the
approved budget. An encumbrance reserves a part of the appropriation at the time of
commitment to ensure that resources will be available to cover the expenditure when the goods
are delivered or the services rendered to the governmental unit. It is essential for good
management and budgetary control to record expenditure commitments that will be paid later from
fund resources. The accounting entry to record a commitment is debit Encumbrances and credit
Reserve for Encumbrances.
The encumbrance account does not represent expenditure for the period, only a commitment to expend
resources. Likewise, the account reserve for encumbrances is not synonymous with a liability account
since the liability is recognized only when goods are received or the services are actually performed.
Example 1: Assume that a purchase order is written for Br.20, 000 on TIKIMIT 20, 2002.
- Later, on HIDAR 10, 2002, the actual invoice is received with the delivery in the amount of Br.18,
250. The entry to record this transaction is:

TIKIMIT 20, 2002: Encumbrance 20,000

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 Reserve for Encumbrances 20,000
(To record issuance of the purchase order)
HIDAR 10, 2002: Reserve for Encumbrances Br.20, 000
Expenditure Br.18, 250
Encumbrances Br.20, 000
Vouchers Payable Br.18, 250
(To record acquisition of the goods order and to offset the encumbrance accounts using combined
entries)
If this should happen, the available balance at the end of the initial accounting period would be
overstated.
Expenditures and the liability account must both be recorded in the actual amount due to the supplier.
The fact that estimated and actual amounts differ causes no accounting difficulties as long as goods or
services are received in the same fiscal period.
Year-End Treatment of Encumbrances
At the end of the fiscal year, all remaining encumbrances are considered reservation of fund balance not
liabilities. They will become a liability when the goods and / or services are received in the following
fiscal year. The budgetary estimate should include an estimated Reservation of Fund Balance as part of
the funds available in the following fiscal year.
2) Fund Balance
The difference between governmental fund assets and liabilities is referred to as the fund balance.
Therefore, the fund balance, for a particular governmental unit, is the difference between total assets
and total liabilities as shown on the Balance Sheet or the Statement of Revenues, Expenditures, and
Changes in Fund Balance in the Annual Financial Report.

3) Inter fund Activity

Transactions may occur between funds. These inter fund transactions are classified as revenue,
expenditure or expense within the individual funds, but not to the governmental units overall. Inter
fund transactions are divided into three categories. These categories are:
(a) Quasi-external transactions,
(b) Reimbursements
(c) Loans.
(a) Quasi-External Transactions: Those transactions that would have been recorded as
revenues, expenditures or expenses had they involved external organizations. The quasi-

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 external transaction suggests the existence of a buyer-seller relationship. For example,
charges for utilities or data processing provided by one fund to another fund.
These transactions should be accounted for as revenues and expenditures (or expenses) in the funds
involved. Since each fund is an accounting entity, the amounts due to one fund from other funds, as
well as the amounts owed to other funds, should be reflected in the fund accounts as ‘due to ‘and ‘due
from’ other funds transactions.
Due to Other Fund is a liability account that reflects amounts owed to another fund for goods sold or
services rendered. These amounts include only short-term obligations on open accounts, not inter
fund loans.
Due from Other Funds is an asset account used to indicate amounts owed to a particular fund by
another fund for goods sold or services rendered. This account also include only short-term obligations
on open accounts, not inter fund loans.
Example 2: Internal Service Fund Billings: Assume that in a particular governmental unit the printing
center gives a printing service costing Br.5, 000 to the general-type activities; the journal entry is:
General Fund: Expenditure – Printing Service 5,000
Due to Internal Service Fund 5,000
Internal Service Fund:
Due from General Fund 5,000
Revenues - Printing Service 5,000
Example 3: The Enterprise Fund bills the General Fund Br. 6,000 for services rendered, the quasi-
external transactions would be recorded as follows:
General Fund: Expenditures 6,000
Due to Enterprise Fund 6,000
Enterprise Fund: Due from General Fund 6,000
Revenues 6,000
(b) Reimbursements
A reimbursement is a repayment of expenditure or expense initially made in one fund, but properly
accounted for in another fund. One fund (the reimbursed fund) pays the expenditures or expenses of
another fund (the reimbursing fund) with the understanding that the reimbursing fund will pay the
reimbursed fund at a later date. Do not confuse these transactions with loans, advances or inter fund
transfers. The proper accounting for reimbursements is to record an expenditure or expense in the
reimbursing fund, and a reduction of expenditure or expense in the reimbursed fund.
1. When the General Fund is the Reimbursed Fund
Record the initial payment of the expenditure or expense as expenditure in the General Fund. No

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entry is made in the reimbursing fund. When the reimbursing fund reimburses the General Fund, the
General Fund reduces its expenditures by the amount received. The reimbursing fund then recognizes
the expenditure or expense.
Example 4: The general fund pays a utility bill of Br.20, 000 for the cafeteria fund. The initial
payment is recorded in the general fund as:
(a) Expenditures – Utilities 20,000
Cash 20,000
When the cafeteria fund reimburses the general fund, the general fund reverses its original entry:
(b) Cash 20,000
Expenditures – Utilities 20,000

2. When the General Fund is the Reimbursing Fund

When the general fund is the reimbursing fund, this initial payment made by the other fund (reimbursed
fund) is not recorded in the general fund. When the general fund reimburses the other fund, the
expenditure is recorded in the general fund.
Example 5: The cafeteria fund made a Br.20, 000 utility bill payments on behalf of the general fund.
When the General Fund reimburses the cafeteria fund, the following entry would be made in the
General Fund:
Expenditures – Utilities 20,000
Cash 20,000
(c) Inter fund Loans
Inter fund loans are made from one fund to another. The fund that made the loan expects to be repaid.
Loans may be short-term or long- term. Inter fund loan amounts are reported as gross. You should not
net inter fund loan amounts. Loans between funds are treated as balance sheet transactions. The
borrowing fund reports a liability and an increase in cash. The lending fund reports a receivable and a
decrease in cash.

i. Short Term Loans and the Short Term Portion of Long Term Loans
Short-term loans and the short-term portions of long-term loans are expected to be repaid within twelve
months. “Due To” and “Due From” accounts are used for short-term loans. The total of governmental
unit’s “Due To Other Funds” account should equal the total of the “Due From Other Funds” account.
The journal entries to record a short-term inter fund loan of Br.1, 000 would be:
General Fund: Due From Fund B 1,000
Cash 1,000
Fund B: Cash 1,000
Due to General Fund 1,000
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 (To record an inter fund loan to Fund B)
Closing Entries for General Fund:
To close Budgetary ledger accounts
Appropriations xxx
Estimated other financial uses xxx
Budgetary Fund Balance xxx
Estimated Revenues xxx
Estimated other financial sources xxx
To close Encumbrances:
Fund Balance xxx
Encumbrances xxx
To close Revenues, Other Financial Sources, Expenditure, and Other Financial Uses:
Revenues xxx
Other Financial Sources xxx
Expenditures xxx
Other Financial Uses xxx
Fund Balance xxx

3.2 Special Revenue Funds

The purpose of a special revenue fund is to account for the proceeds of revenue sources that are legally
restricted for specific purposes. Special Revenue Funds differ from enterprise funds in that the services
delivered by a Special Revenue Fund are not financed by user charges. NCGA Statement 1 states that
special revenue funds should be used only when legally mandated. Additionally, if resources are used
to support expenditures made from the General Fund, these resources should be accounted for in the
General fund. This task will discuss: the nature and purpose of Special Revenue Funds; and how
Special Revenue Funds are established.

3.2.1. Nature and Purpose

Special Revenue Funds are used to account for financial resources, which are restricted to expenditures
for specified purposes.

3.2.2. Basis of Accounting and Measurement Focus

As a governmental fund type, the focus of Special Revenue Fund accounting is on sources and uses of
“available expendable resources” rather than upon net income determination. Special Revenue Funds
are accounted for on a modified accrual basis of accounting as defined in this unit.

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The Special Revenue Fund contains only current assets and current liabilities. Current meaning the
asset is expected to be received or the liability paid within one year from the Balance Sheet date.
Liabilities should be recognized as fund liabilities when the claims are scheduled or applicable for
liquidation with existing resources.
Note: Accounting for Special Revenue Funds is similar to that of the General fund.

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Practice Question:

Record Journal entries for the following transactions in General Fund for the financial year
2005-2006.

1. Property taxes levied for the year is Birr 1,500,000; and estimated allowance for
uncollectible is 10%.
2. Collection of property taxes during the year by due date is Birr 1,200,000 and
uncollectible is deemed Birr 120,000.
3. Business income tax collected for the year is Birr.800,000.
4. Value added tax collected during the year is Birr750,000.
5. Fines and forfeits collected during the year is Birr 150,000.
6. Received towards licenses and permits during the year is Birr 210,000
7. Subsidy receivable from state government is Birr. 175,000.
8. The remaining balance of property taxes receivable for 2005-06 is considered
delinquent.
9. During the current year, previous year i.e. 2004-05 delinquent property taxes of Birr
40,000 plus interest & penalties of Birr 10,000 were collected.
10. Donations of Birr 30,000 received from a private company in cash.
11. Donations of equipment is received from a foreign country whose fair market value is
birr 180,000 which is intended for sale and was sold during the year for Birr 180,000.
12. Issued long term bonds during the year worth Birr 500,000.
13. Paid for salaries and benefits Birr 900,000.
14. Salaries and benefits approved but not paid Birr 100,000.
15. Salaries and benefits incurred but not paid Birr 200,000.
16. Insurance policy purchased for one year on 1 January, 2006 Birr 80,000.
17. Paid for interest on Debt birr 25,000.
18. Transferred Birr 125,000 to Debt service fund.
19. Purchased order issued for goods and material birr 75,000.
20. Invoice and delivery of goods and material received for Birr 68,000.
21. Enterprise fund billed for utilities consumed Birr 15,000
22. Reimbursed to Fund X for Rent expense Birr 12,000.

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