CLASSIFYING FUNDS-BUDGETARY/LEGAL BASIS - 7410

(Revised: 04/2020)

The state’s funds are classified on both a budgetary/legal basis and a generally accepted accounting principles (GAAP) basis. A fund’s classification determines the basis of accounting, measurement focus, general ledger accounts, and the year-end financial reports required.

The budgetary/legal basis classification groups funds into two main categories:

  1. Governmental Cost Funds

    Funds in this group are used to account for moneys derived from general and special taxes, licenses, fees, or other revenue sources to provide financing for state activities that are the general-purpose (normal costs) of state government. The governmental cost funds group is further broken down into two groups:

    • General Fund: This is the main operating fund of the state. It accounts for transactions related to resources obtained and used for those purposes that are not required to be accounted for in any other fund.
    • Special Funds: Special Funds is a generic term for governmental cost funds other than the General Fund. These funds are used to budget and account for taxes, licenses, and fees restricted for particular activities of the government. Lower level classifications are usually assigned to special funds to associate them with their specific purposes.
  2. Non-Governmental Cost Funds

    Funds in this group are used to budget, record, and report revenues other than general and special taxes, licenses, and fees. Some of the funds in this group are listed below.

    • Bond Funds: Document the receipt and disbursement of general obligation bond proceeds. Bond funds do not account for the liability and the debt retirement created by the sale of general obligation bonds. Depending on the provisions of the bond act, either the General Fund or a sinking fund pays the principal of, and interest on, the general obligation bonds.
    • Trust and Agency Fund – Federal: Used to account for money received in trust from the federal government and the associated program expenditures.
  3. All Other Non-Governmental Cost Funds: Other fund classifications within the non-governmental cost funds group include: Trust and Agency Funds – Other, Retirement Funds, Public Service Enterprise Funds, and Working Capital and Revolving Funds.

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