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CHAPTER 2 Fund Accounting LEARNING OBJECTIVES After studying this chapter you should understand:

I have attached the chapter 2 that we are using for the Spring 2010. Please let me know if this is the same edition that is already being used for Course Hero. The edition we are currently using is the 4th edition. Thank you.
CHAPTER 2 Fund Accounting L EARNING O BJECTIVES ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• After studying this chapter you should understand: The nature of funds, including why they are used and the interrelationship among them The basic fund types used by governments—governmental funds, proprietary funds, and Fduciary funds The main components of a government’s comprehensive annual Fnancial report The primary Fnancial statements—both government-wide and fund—issued by governments How the fund structures and Fnancial reports of not-for-proFts differ from those of governments
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What Characterizes Funds? 37 In Chapter 1 we set forth some of the key characteristics that distinguish governments and not-for-proFts from businesses. We also discussed their implications for account- ing and reporting. In particular we noted that governments and not-for-proFts use fund accounting. In this chapter we explain the rationale for fund accounting, describe the main types of funds maintained, and examine the relationships among funds. As noted in Chapter 1, in June 1999 the Governmental Accounting Standards Board (GASB) established a new reporting model for state and local governments. In this chapter we highlight the key features of the new model. We also present the main attributes of the ±inancial Accounting Standards Board’s (±ASB) model for not-for-proFt entities and show how it differs from the government model. A key purpose of our discussion is to emphasize that funds can be combined and reported in a variety of ways for purposes of external reporting. W HATISAFUND? •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• Government and other not-for-proFt organizations establish their accounting systems on a fund basis. In governmental and not-for-proFt accounting, the term fund has a different meaning than it does in business accounting. In business accounting, funds typically refers either to working capital (current assets less current liabilities) or to selected elements of working capital (such as cash and investments). In governmental and not-for-proFt accounting, a fund is a Fscal and accounting entity. Each fund has its own self-balancing set of accounts from which Fnancial statements can be prepared. Governments and not-for-proFts customarily use several funds—several Fscal and accounting entities—to account for their resources and activities. ±or example, a church may use one fund to account for its general operating revenues and expenses, another to account for resources set aside to construct a new building, and a third to account for its religious school. W HAT CHARACTERIZES FUNDS? •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• Each fund of a government or not-for-proFt can be represented by a variation of the accounting equation that describes a business entity. Rather than assets = liabilities + owners’equity fund accounting uses the equation assets = liabilities + fund balance Remember, governments and not-for-proFts may not have owners, so the term owners’ equity is replaced by the term fund balance. ±und balance, like owners’ equity, is a residual—the difference between the fund’s assets and the claims against those assets. The fund balance is the amount left to the parties with rights to the assets after all other claims have been liquidated. ±und balance is often referred to as net assets. Hence the equation can also be expressed as assets liabilities = net assets (or fund balance) Because funds can be represented by the basic accounting equation that is used by businesses, they can also be accounted for by the same double-entry system
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