If you haven’t read through chapters 1 and 2 of “Accounting for Governmental & Nonprofit
Entities” by now, please do! It will help!
You may be saying to yourself, “Huh? What in the name of… What is a ‘Fund’? What are these guys talking about?” Don’t be alarmed—government accounting is very different from
Generally Accepted Accounting Principles (GAAP) accounting. There are very good reasons for these differences. One of these differences is the way accountability is viewed.
Accountability to the shareholders of a for-profit firm is different from accountability to taxpayers and other governing agencies. Private firms provide net income as a “bottom line” to its shareholders. Governments provide service as a “bottom line” to its stakeholders.
Shareholders of a private firm want to know that their firm is profitable and the management of the firm is increasing stock worth. The stakeholders of government agencies are more concerned with how current public resources are being handled. Pinnacle to this concern is the flow of current revenues and cash outlays. You may have heard it said to a government employee (or you may have said it yourself), “I pay your salary. I expect you to provide the service I pay for! What are you doing with all my tax dollars?” Governmental accounting strives to provide all stakeholders with answers to these and other related questions.
Governments collect finances from individuals for many different reasons and in many different ways. Income taxes are collected from working individuals for the purpose of maintaining infrastructure, collecting trash, supplying safety and fire services, and providing public recreation. Special tax assessments or levies may be raised to add sidewalks to a specific street or neighborhood. Bonds may be issued to purchase large ticket items like buildings or bridges. Grants may be given to a government agency to manage a public greenhouse or cemetery. A government may also collect taxes for other government agencies or payments to an individual retirement fund. These activities and the financial resources used to support them must be accounted for separately in order to ensure that the funding is being used for the purpose it was collected for. So for every type of activity and funding source that exists, a special way of tracking the activity and funding source is needed. This is what is known as a “fund.” Think of a fund as a mini set of
