Chapter 2Fund Accounting and the Financial Reporting Model

Learning objectives

  • Recognize funds and identify why they are used.
  • Determine how many funds are needed.
  • Recognize the fund structure used by governments.
  • Recognize the financial reporting model used by governments.

Reporting two ways: Fund and government-wide statements

Governments report financial activities in two ways: by fund and for the government as a whole.

Fund fundamentals


Before we explicitly define fund, we must understand why governments use funds. One reason is because governments receive resources from a variety of sources for a variety of purposes. For example, a city may receive resources from the state to maintain roads or from the federal government to run a reading program. Governments may also hold restricted resources for such things as employee pensions or a reserve for future debt payments. Governments must be able to demonstrate that they are using resources for the purposes for which they were given.

In addition, governments are engaged in a diverse range of activities with different operating objectives. For example, many activities are provided without direct charge (for example, police service), whereas some services are set up to recover full costs (for example, water and sewer services). Governments will want to separately measure these types of activities to see if they are meeting their different financial objectives.

To meet the overall objective of accountability, governments ...

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