CLASSIFYING FUNDS-GAAP BASIS - 7420

(Revised: 04/2020)

The generally accepted accounting principles (GAAP) basis classification divides funds into three broad fund categories:  Governmental, Proprietary, and Fiduciary. The GAAP classification assigned to a fund impacts how the fund is displayed in the state comprehensive annual financial report.

1. Governmental Funds

   These funds are used to record and report the normal resources and costs of day-to-day activities in providing governmental type services.  The focus of governmental funds is current financial resources. Funds in this group are classified into one of the following five fund types:

   • General Fund: This is the main operating fund of the state. It is used to account for all financial resources not accounted for and reported in another fund.
   • Special Revenue Funds: Used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects.
   • Capital Project Funds: Used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets (other than those financed by proprietary and fiduciary funds).
   • Debt Service Funds: Used to account for and report financial resources that are restricted, committed, or assigned to expenditures for principal and interest. Debt service funds should also report financial resources being accumulated for principal and interest maturing in future years (other than those financed by proprietary and fiduciary funds).
   • Permanent Funds: Used to account for and report resources that are legally restricted to the extent that only earnings, and not principal, may be used to support the reporting government’s programs, that is, for the benefit of the government or its citizens.
2. Proprietary Funds

   These funds are used to account for activities that receive significant support from fees and charges. Funds in this group are classified into two fund types:

   • Enterprise Funds: Used to report any activity for which a fee is charged to external users for goods or services. Activities are required to be reported as enterprise funds if any one of the following criteria is met:
     • The activity is financed with debt that is backed solely by fees and charges
     • Laws and regulations require that fees and charges be set to recover costs, including capital costs (depreciation or debt service); or
     • There is a pricing policy that fees and charges be set to recover costs, including capital costs (depreciation or debt service).
   • Internal Service Funds: Used to report any activity that provides goods or services to other funds, agencies/departments, or agencies of the primary government and its component units, or other governments, on a cost-reimbursement basis.
3. Fiduciary Funds

   These funds are used to account for assets held in a trustee capacity for others or as a custodian/agent for individuals, private organizations, and other governments, and cannot be used to support the government’s own programs. Funds in this broad group are classified into four fund types:

   • Pension Trust Funds: Used to report resources that are required to be held in trust for the members and beneficiaries of defined benefit pension plans, defined contribution plans, other post-employment benefit plans, or other employee benefit plans.
   • Investment Trust Funds: Used to report fiduciary activities from the external portion of investment pools and individual investment accounts that are held in trust.
   • Private-Purpose Trust Funds: Used to account for all other trust arrangements under which principal and income benefit individuals, private organizations, or other governments.
   • Custodial Funds: Used to account for money held by the government as a custodian until distributed to the legal owner/beneficiary.