PROFESSOR: Now we're going to talk about fund accounting. As I said, it's F-U-N-D accounting. So the first question is, what is a fund? Well, a fund is a group of accounts. The technical definition you can read is an accounting entity with a self-balancing set of accounts for recording various financial transactions.
It is important to note that each fund is a separate accounting entity. It has a separate balance sheet and related expenditures and revenues. There are a number of funds used by school districts, and they have different purposes.
The types of funds are broken into three major groups. First, the governmental funds-- these are the funds that are used for the primary operation of the government agency. In this case-- school district. There are several different governmental funds. The first and most important fund is the general fund. This is where most of the transactions will reside.
As you will see if you look through the notes, each fund has a code. The fund codes are two digits. The general fund is a code 10. It is a fund that is required of all school districts. Every school district must have a general fund. And that's the one they use most often. The quickest and easiest way to think about the general fund is that any account or any transaction that doesn't go into another fund, by requirement goes in the general fund. So it's the default fund, as it is.
In addition, there are several different kinds of what are called special revenue funds. These funds, the general code is account 20 for special revenue funds. If there are more than one special revenue funds, then it would be 21, 22, 23, and so forth. Each of these funds has a particular purpose, and their general purpose is to collect revenues and put revenues in that fund, hold them there for particular purposes. So if you are putting money into a fund you wish to set aside for future uses, for particular purposes, this is where you would put some of those funds.
The third type of fund are called capital projects funds. This is the code 30. Again, you can have multiple funds because you may have multiple capital projects going on at the same time. So if you had three, you could have a fund 31, 32, and 33. They are used to hold monies that are committed to capital outlay expenditures-- things like building projects, major renovations.
These monies that go in there can come from various kinds of purposes. It's possible-- and districts will-- transfer money out of the general fund, which is a separate fund, into a capital projects fund that they are putting money aside to build a new high school. That money will be moved out of the general fund into the capital projects fund and will stay there until it's used. Now, once monies are in the capital projects funds, they stay there. With very few exceptions, they are put in there to be used for that particular purpose, for capital projects.
The next group of funds are debt service funds. These are funds that are used to collect monies to pay off the debt service that the district has. Often when the district undertakes a capital project, it will sell bonds. It will collect the funds for those bonds. Those monies will go into the capital projects fund to pay for the project. And in order to pay the bondholders, monies when they come due, the district is often required to set aside monies in a debt service fund, to accumulate those monies, so when the principal and interest for those bonds comes due, there will be money set aside for that.
There are then a series called permanent funds. These are number 90's. These are non-expendable funds, meaning you cannot spend the basic principal out of those funds. You can only spend the interest that is earned for monies being held for interest in those funds. And they are used to support various programs.
So all those are government funds. They are funds that are run by and operated by, held by the school district for its general and normal operations. There's another group of funds that are called proprietary funds. These are also funds that are created by the school district. But the purpose of these funds are to provide an operation and accounting for operation that are generally not school district normal activities.
The first group are called enterprise funds. These are for activities that are similar to a private sector company. There may be activities that the district runs, and they want to know whether they're making a profit or loss on those. They can run them for themselves, or they can run it for outside activities.
Another group of proprietary funds are internal service funds. These are similar kind of fund, except these are to account for internal activities that the district operates for itself-- it might be a warehousing operation. It might be a print shop-- so that you would be able to keep track of the revenues that would be charged for that, the expenditures that you make in that, so that you'll know whether your particular operation is making money or losing money for the district. And it will also give you some information at some future time, whether or not you want to consider changing this operation or perhaps contracting it out if the information from your internal service fund says this is not a good activity.
The final group of funds are fiduciary funds. These are, again, not normal, general activities of the district. They are funds that hold monies for other people that the district simply is a financial agent for. These are not district monies. They are simply acting as an agent. They can be trust funds, where the monies would be given in trust. Or they can be agency funds, where the district acts as an agent for someone else. I think a good example of agency funds would be an activity fund where the district holds and dispenses money for student activities.