CHAPTER FOUR

GENERAL FUND & SPECIAL REVENUE FUNDS

General Fund is
➢ Used for general governmental activities, general fund includes transactions for general
government services provided by the executive, legislative, and judicial operations of the
government unit. In addition, public services such as fire and police protection and public cultural
and recreation activities are included
➢ Account for all financial resources for which a separate fund is not required. All governmental
entities have a general fund (GF). Although it may be called the operating fund, the current fund
or something similar, the general fund will exist as long as the entity exists.
➢ Used to account for all financial resources except those required to be accounted for in another
fund.
➢ General fund refers to revenues accruing to the state from taxes, fees, interest earnings, and
other sources which can be used for the general operation of state government
Special Revenue Fund
➢ Special revenue funds are established to account for general governmental financial resources that
are restricted by law or contractual agreements to specific purpose (s) and special revenue funds
are exist for the life of restriction. For example, they may be used to account for federal (state)
grants which are restricted as to purpose or to account operating activities of libraries and other
services supported by special taxes. Another example might be when a tax or other revenue
source is restricted to a specific purpose by a legislative body; its use assists in demonstrating
compliance with that purpose.
➢ Special revenue fund (SRF) in contrast to GF is used to account for resources, which are collected
for a specified purpose. Fees for rubbish collection, state taxes on diesel fuel that is required to be
used only for road maintenance, tax on hotel rooms to be used to improve tourist facilities, traffic
violation fines are examples of governmental units revenues that may be accounted for in a
separate special revenue fund.
➢ A special revenue fund is an account established by a government to collect money that must
be used for a specific project.
The general fund and the special revenue funds have different purposes, but they are both revenue
funds, and the accounting and reporting procedure is the same for both.

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 They differ in that the General fund accounts for revenues and other financing sources raised to
provide for all day-to-day-operating activities, whereas Special Revenue Funds are used to account for
a specific revenue source that must be used only to finance a specified activity
Special revenue funds provide an extra level of accountability and transparency to taxpayers that their tax
dollars will go toward an intended purpose.
ACCOUNTING CHARACTERISTICS
Fixed assets are not capitalized in either fund. Their purchase is considered as expenditure, the same as
for salaries or utilities. Such fixed assets are not accounted for by these funds, because, they are not
normally converted into cash. Similarly the same categories of funds account for only those liabilities
incurred for normal operations that will be liquidated by use of fund assets.
GOVERNMENTAL FUND BALANCE SHEET AND OPERATING STATEMENT ACCOUNTS
BALANCE SHEET ACCOUNTS
General fund, special revenue funds, and all other governmental funds account for:-
✓ Only financial resources (cash, receivables, marketable securities and, if material, prepaid items
and inventories).
✓ Economic resources, such as land, buildings, and equipment utilized in fund operations, are not
accounted for by these funds because they are not normally converted in to cash.
✓ Similarly, these categories of funds account for only those liabilities incurred for normal
operations that will be liquidated by use of fund assets.
✓ General capital assets and general long term liabilities are reported in the statement of net assets
at the governmental wide level.
✓ The Arithmetic Difference between the amount of financial resource and the amount of
liabilities recorded in the fund is the Fund Equity. Residents of the governmental unit have no
legal claim on any excess of liquid assets over current liabilities; there for, the fund equity not
analogous to the capital accounts of investors owned entity. Accounts in the fund equity category
of general funds and special revenue funds consists of reserve accounts established to disclose
that portion of the equity are not available for appropriations; the portion of equity available for
appropriation is disclosed in an account called Fund Balance (also referred to as Unreserved
Fund Balance).
OPERATING STATEMENT ACCOUNTS
The General Fund and special revenue funds account for financial activities during a fiscal year in
operating statement accounts classified as Revenues, Other Financing Source, Expenditures, and Other
Financing Uses.

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 Revenue: - is the increase in the fund financial resources other than from inter fund transfers & debt
issue proceeds.
Other financing sources- are classified as an increase in the fund financial resources as a result of
operating transfers into a fund and debt issue proceeds received by a fund. It represents operating
transfers in from other funds and proceeds of long-term borrowing.
OFS is amount of financial resources estimated to be received during the period from inter fund transfer.
Expenditure is defined as decrease in fund financial resources other than through inter fund transfers,
operating transfers out of a fund that are classified as other financing uses. It is a term which replaces
both the terms costs and expenses used in accounting for profit seeking entities.
Other Financing uses - a decrease in the fund financial resources as a result of operating transfers out of
a fund. It is an amount of financial resources estimated to be disbursed for other funds.
Budgeted inter fund transfers and debt issue proceeds may be recorded in Estimated Other Financing
Sources and Estimated Other Financing Uses control accounts supported by subsidiary accounts as
needed.
Both revenues and other financing sources are temporary accounts that increase fund balance at year-
end when closing entries are made. Similarly, expenditures and other financing uses are temporary
accounts that decrease fund balance when closing entries are made.
BUDGETARY ACCOUNT
The two classifications of budget for governmental units are the same as those for business enterprises.
Annual budgets include the estimated revenues & appropriations for expenditures for a specific fiscal
year of the governmental unit. Annual budgets are appropriate for the general fund & special revenue
funds.
Budgetary Accounts include Estimated Revenues, Appropriation, Encumbrance, Estimated OFSs, and
Estimated OFUs
Estimated Revenues – different sources revenue for the governmental unit expected to be collected
during the year. It is an account maintained to show the amount of revenue that will be collected in
future. Major revenue source classes commonly used are:
• Taxes
• Special Assessments
• Licenses and Permits
• Intergovernmental Revenues
• Charges for Services

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 Appropriations – is both an authorization to spend and limitation of spending. Appropriation could be
further subdivided- by month or other periods; these subdivisions are called Allotments.
Encumbrances – Purchase orders (P.O.) in governmental entities have the function of keeping track of
coming expenditures so that the budget is not exceeded. This is done by actually recording the P.O in the
ledger account as an Encumbrance.
Encumbrance is an account used to record the estimated amount of purchase orders or contracts
An encumbrance differs from expenditure in the following perspectives.
➢ The encumbrance is an estimate of liability to be incurred while expenditure is an actual
liability which has been incurred. The reason that encumbrance is only an estimate is that
invoiced amounts sometimes differ from purchase order amounts.
➢ Encumbrance denotes amount stated on the purchase order, which is subject to
change whereas, expenditure is the actual amount of money a governmental unit should
pay up on delivery. This may be equal or greater/less than the encumbered amount. For
example a particular item may be out of stock, and either backordered, or substituted by a
similar item.
The normal balance of Budgetary and Operating Statement Accounts can be summarized as follows.
Budgetary Accounts Normal Operating statement Normal
Balance balance
Estimated Revenues Debit Revenues Credit
Estimated Other Debit Other Financing Sources Credit
Financing Sources
Appropriations Credit Expenditures Debit
Estimated Other Credit Other Financing Uses Debit
Financing Uses
Encumbrances Debit
RECORDING THE BUDGET
The entry to record the budget is simple. It is normally done on the first day of the fiscal year. Estimated
revenue is debited, Appropriations is credited, and fund balance is debited or credited for the difference
and at the end of fiscal period the entry is reversed.
Estimated Revenue xxx
July 1,2007 Appropriation xxx
Debit/credit Fund Balance xxx
To Record Budget at the beginning of the fiscal period
Note: Credit fund balance implies surplus of Budget and Debit fund balance indicate budget deficit.
Appropriation xxx
June 30,2007 Debit/credit Fund Balance xxx
xxx
Estimated Revenue xxx

To Close Budget at the end of fiscal period

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 Example Assume a budget with Estimated Revenues of 500,000 Birr and Appropriations of 480,000 Birr
on june 1,2002
a) Record Budget on July1,2002
b) Record Budget on June 30,2002

Solution a)
July 1,2002 Estimated Revenues 500,000
Appropriations 480,000
Fund Balance 20,000
To Record Budget at the beginning of the fiscal period
b)
June 30,2002 Appropriations 480,000
Fund Balance 20,000
Estimated Revenues 500,000
To Close Budget at the end of fiscal period

Two Journal entries are needed for encumbrances:

1. When the order is paced, Encumbrances is debited and Reserve for Encumbrances (a fund
Balance account) is credited
2. When the goods/order is received, the above entry is reversed and another entry to account
actual liability would be recorder: a debit to Expenditure and a credit to Cash/ Accounts
Payable
Example 1- Addis Ababa city administration [Link] places a purchase orders/ p.o no. 010/06/ for
equipments to a supplier in an amount of 150,000.
Encumbrance 150,000
Fund Balance Reserved for Encumbrances 150,000
(To record encumbrances for p.o no. 010/06 to WABE company.)
The order is received from Addis Ababa city under purchase order no. 0010
Fund Balance reserved for Encumbrances 150,000
Encumbrances 150,000
/To reverse encumbrance for purchase order no. 0010 to WABE company The
suppliers Received 180,500 invoice price
Expenditures 180,500
Vouchers payable 180,500
As indicated by the example above the invoice amount may differ from the amount of the governmental
units purchase order because of such items as shipping charges, Sales Taxes, and price changes.
e
Encumbrances are not necessary for every single expenditure. Expenditures that are regular and predicable, such as payroll are
not typically encumbered. Correct sequence in the expenditure process in governmental accounting is
APPROPRIATION ENCUMBRANCE EXPENDITURE DISBURSEMENT

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 Accounting for General Fund and Special Revenue Fund
Illustration
Assume that in addition to the budget illustrated earlier, the Addis Ababa City general fund had the
following summarized transaction and events for the fiscal year ended June 30, 2006
1) Property taxes were billed in the amount of 7,200,000 of which 140,000 was of doubtful collect
ability.
2) A total of 6,500,000 amount of Property tax were collected and a total of 1,020,000 amount of
cash from other revenue sources like licenses and permits, fines and forfeits, miscellaneous
sources were also collected
3) Property tax in the amount of 130,000 was identified to be uncollectible.
4) Purchase orders for office equipment were issued to outside suppliers in the total amount of
3,600,000.
5) 5. Invoice for services and supplies received from enterprise fund and internal service fund
totaled 300,000 and 200,000 respectively.
6) Cash payments on vouchers payable totaled 7,700,000. Cash payment to the Enterprise fund and
the internal service fund were 250,000 and 140,000 respectively.
7) Previous orders were received and the invoice totaled $4000,000
8) Approved budgets by the town council for the fiscal year ended on June 30,
year6. Estimated revenues:
- General property taxes................................7,000,000
- Licenses and permits .......................... 400,000
- Charges for services ......................... 500,000
- Fines and for fits ............................... 300,000
- Miscellaneous revenues ........................ 200,000 8,400,000
Estimated other financing sources (transfer from EF) 100,000
Appropriation:
- General government .......................... 4,700,000
- Public safety .......................... 1,900,000
- Health and welfare .......................... 1,100,000
- Culture and recreation ...................... 400,000 8,100,000
Estimated other financing uses (transfer to DSF) 100,000
9) Assuming that the total (Actual) revenue and Expenditure for the Addis Ababa city town
is composed of the following sources,
Revenues:
General Property Tax 7,060,000
Licenses and Permits 450,000
Charges for Services 470,000
Fines and Forfeits 310,000
Miscellaneous Revenue 190,000
Expenditure
General Government 4,590,000

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 Public safety 2,000,000
Health and Welfare 1,200,000
Culture and Recreation 210,000
Estimated other financing uses 110,000
The following trail balance and balance sheet data is available for Addis Ababa city as of June 30,
2006
Addis Ababa city town
General fund
Trial Balance
June 30, 2006
Account title Debit Credit
Cash 1,420,000
Taxes Receivable- Delinquent 560,000
Inventory of Supplies 500,000
Vouchers Payable 700,000
Payable to Enterprise Fund 50,000
Payable to Internal Service Fund 60,000
Reserved Fund Balance 1,670,000
Budgetary Fund Balance 300,000
Estimated Revenues 8,400,000
Estimated Other Financing Sources 100,000
Appropriations 8,100,000
Estimated Other Financing Uses 100,000
Revenues 8,480,000
Other Financing Sources 100,000
Expenditures 8,000,000
Other Financing Uses 110,000
Encumbrances 50,000 .
Total 19,150,000 19,150,000
Required
a) Prepare necessary journal entry
b) Prepare statement of revenue expenditure and change in Fund balance
c) Prepare Balance sheet
SOLUTION

a)
1. Property tax receivable- current 7,200,000
Allowance for uncollectible prop. taxes -current 140,000
Revenue 7,060,000
2. Cash 7,520,000
Property taxes receivable-current 6,500,000
Revenue 1,020,000
3. Allowance for uncollectable Property taxes – current 130,000
Property taxes receivable- current 130,000
4. Encumbrances 3,600,000
Reserved for Encumbrances 3,600,000

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 5. Expenditures 500,000
Payable (Due) to Enterprise fund 300,000
Payable (Due) to Internal Service fund 200,000
6. Vouchers payable 7,700,000
Payable to Enterprise fund 250,000
Payable to Internal service fund 140,000
7. Reserve for encumbrance 3,600,000
Encumbrance 3,600,000
Expenditure 4000,000
Vouchers payable 4000,000
Cash 8,090,000
8 Estimated revenues 8,400,000
Estimated other financing sources 100,000
Appropriations 8,100,000
Estimated other financing uses 100,000
Budgetary fund balance 300,000
Closing Entries for a General Fund

Appropriations 8,100,000
Estimated other financing uses 100,000
Budgetary fund balance 300,000
Estimated Revenues 8,400,000
Estimated Other Financing Sources 100,000
9 Expenditures 8,000,000
Other Financing Uses 110,000
Unreserved and undesignated Fund Balance 470,000
Revenue 8,480,000
Other Financing Sources 100,000
/ To close Revenues, Expenditures, Other Financing Sources and Uses
Revenue 8,480,000
Other Financing Sources 100,000
Expenditures 8,000,000
Other Financing Uses 110,000
Unreserved and undesignated Fund Balance 470,000
b) Addis Ababa City General fund
Statement of Revenues, Expenditures and Change in Fund Balance
For the Year ended June 30, 2006

Budget Actual Variance

Favorable
Revenues:
General Property Tax 7,000,000 7,060,000 60,000
Licenses and Permits 400,000 450,000 50,000
Charges For Services 500,000 470,000 (30,000)
Fines and Forfeits 300,000 310,000 10,000
Miscellaneous Revenue 200,000 190,000 (10,000)

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 Total Revenues 8,400,000 8,480,000 80,000
Operating Transfers In 100,000 100,000 0
Total of Revenue and O.F.S. 8,500,000 8,580,000 80,000
Expenditures:
General Government 4,700,000 4,590,000 110,000
Public Safety 1,900,000 2,000,000 100,000
Health an Welfare 1,100,000 1,200,000 (100,000)
Culture and Recreation 400,000 210,000 190,000
Total Expenditures 8,100,000 8,000,000 100,000
Other Financing sources (Uses): 100,000 110,000 (10,000)
Total of Expenditure and OFU 8,200,000 8,110,000 90,000
Operating Transfers Out
Excess of Revenue and O.F.S. over Expenditure 300,000 470,000 170,000
and OFU
Add: Fund Balance, July 1, 2006 0 0 .
Fund balance June 30, 2006 300,000 470,000 170,000

C. Addis Ababa City General Fund

Balance Sheet,
June 30, 2006

Assets Dr Cr
Cash 1,420,000
Property Taxes Receivable- Delinquent 560,000
Inventory of Supplies 500,000
Total Assets 2,480,000
Liabilities and Fund Balance
Liabilities
Vouchers Payable 700,000
Payable to Enterprise Fund 50,000
Payable to Internal Service fund 60,000
Total Liabilities 810,000
Reserved Fund Balance 1,670,000
Total Liabilities and Fund Balance 2,480,000

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 ACCOUNTING FOR SPECIAL REVENUE FUNDS

The distinguishing feature of a special revenue fund is that its revenues are obtained primarily from tax
and non-tax sources not directly related to services rendered or facilities provided for use. Separate
special revenue funds are established by governmental units as mandated by legislative enactments.
Illustration
To illustrate the accounting for a Special Revenue Fund, Assume that on July 1, 2006, The town
council of the Addis Ababa city town authorized the establishment of a special Revenue Fund- its first
such fund- to account for Special Assessment against certain residents of the neighboring village of Gute.
1) The town council adopted a budget for the special revenue fund for the year ending June 30 2007,
providing for estimated revenues (from the special Assessments) of 800,000 and appropriations
for reimbursement to the General fund for expenditures made by that fund for the services
provided to the village of Gute residents) of 750,000.
2) Special Assessments tax totaling 820,000 were levied which are to be paid in full in sixty days.
3) Cash Receipts from Special Assessment Taxes of 820,000 were collected in full.
4) Out of the cash receipts, 630,000 was invested in Treasury bills with face amount of 650,000.
The treasury bills mature on June 30, 2007 and were redeemed in full on that date.
5) Billings from the Addis Ababa City General fund, requesting reimbursement of expenditures of
that fund, totaled 760,000; of that amount, 620,000 was paid to the General Fund by June 30,
2007
REQUIRED
1. Prepare necessary Journal entry
2. Prepare statement of Revenue expenditure and change in fund balance
3. Prepare Balance sheet
SOLUTION
1. Journal entry
1. Estimated Revenues 800,000
Appropriations 750,000
Budgetary Fund Balance 50,000
To record the annual adopted budget for fiscal year ending June 30 ,2007/
2. Special Assessment Tax Receivable- current 820,000
Revenues 820,000
/ To record special assessments billed, all of which are estimated to be collectable/
3. Cash 820,000
Special Assessment Tax Receivable- current 820,000
/ To record collection of special assessment tax in full during the year/

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 4. Short Term Investments 630,000
Cash 630,000
=/To record acquisition of 65,000 face amounts of treasury bills/
Cash 650,000
Short Term investments 630,000
Revenues 20,000
/ To record receipts of cash for matured U.S treasury bills..
5. Expenditures 760,000
Payable to General Fund 760,000
/To record billings from general fund for reimbursement of expenditures for street cleaning and street light
maintenance for residents of the village of Gute
Payable to General Fund 620,000
Cash 620,000
/ To records payments of general fund during the year/
Closing Entries
Appropriations 750,000
Budgetary Fund Balance 50,000
Estimated Revenues 800,000
/ To close budgetary ledger accounts/
2. Statement of Revenue expenditure and change in fund balance
Addis Ababa City Special Revenue Fund
Statement of Revenues, Expenditures and Changes in Fund Balance
For the year ended June 30, 2007

Budget Actual Variance

(Unfavorable)
Revenues:
Special Assessments 800,000 820,000 20,000
Other 20,000 20,000
Total Revenues 800,000 840,000 40,000
Expenditures
Reimbursement of General Fund- 750,000 760,000 (10,000)
expenditures
Excess of Revenues over Expenditures 50,000 80,000 30,000
Add beginning Fund balance 0 0 0
(Fund Balance End of year)-------------
year)------------- 50,000 80,000 30,000

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 1. Balance sheet
Addis Ababa city Special Revenue fund
Balance Sheet
June 30, 2007
ASSETS

Cash 220,000
Total Asset 220,000
Liabilities and Fund Balance
Payable to General fund 140,000
Fund Balance Designated for Reimbursement of General fund 80,000
Total Liabilities and Fund Balance 220,000
TERMINOLOGY AND CLASSIFICATION FOR GOVERNMENTAL FUND BUDGETS AND
ACCOUNTS
I. Classification of Appropriations and Expenditures
The budgeted appropriations are often called estimated expenditures, and the appropriation budget is
called expenditure budget..
According to GASB’s Principles, Expenditures should be classified by: -
[Link]
2. Function or program
3. Organization unit
4. Activity
5. Character (fiscal period)
6. Object
1. Classification by Fund
The primary classification of governmental expedition is by fund, since funds are the basics fiscal &
accounting entity of governmental unit.
Eg. G,F SRF CPF, DSF
2. Classification by Function or Program
Functions are group related activities that are aimed at accomplishing a major service or regulatory
responsibility..
E.g. The G.F. may –have the following programs or functions.
-General Governmental
-Public safety
-Health & welfare
-Culture & recreation
3. Classification by organization unit
E.g. - Police dept
- Fire dept
- Public works dept
- Parks & recreation dept
4. Classification by activity
An activity is a specific & distinguishable line of work performed by an organizational unit to fulfill the
overall goals of the program or function. For example, within the police dept, activities such as the
following may be performed.
- Crime control by -- Foot patrol
Car Patrol
- Traffic control by – Traffic

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 -
5. Classification by character
This classification has to do with the expenditure itself than the department or fund in which it
is incurred. The character of expenditure is either.
✓ Current expenditure – meant to benefit the current period only.
✓ Capital expenditure – benefits the current period plus other periods the future.
✓ Debt service expend – includes payment of interest or debt & payment of debt principal that
arises from past period benefits which may also be expected to benefit the current and
future period.
6. Classification by object
Object of expenditure is the thing for which the expenditure was made. It is mainly a concern of
current period expenditures..
E.g. Personal services
Other services &
charges Supplies
Capital outlays
Addis Ababa City G.F
Public safety
Programs /functions
Police dept organization unit
Crime control activity
Current expend. Character
Supplies object

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 II. Classification of Estimated Revenues
Revenues are defined, as all increases in fund net Assets except those arising from inter fund
transfers and from proceeds of long-term debt. A governmental unit and the funds thereof, may
Major revenue source classes are: -
1. Taxes
2. Licenses & permits
3. Inter governmental revenues
4. Charges for services
5. Fines & forfeits
6. Miscellaneous revenues
1. Taxes
Taxes are a forced contribution imposed on the citizens by the government. There are a number
of different kinds of taxes possible, including property (land use) sales, excise, income, customs,
and capital gain etc….
✓ Taxes Receivables–Current: is used to accrue taxes which are due in the current Year.
Taxes which are expected to be collected within the current year are to be
recorded in this account.
✓ Taxes Receivable–Delinquent: is used to record any taxes which are past due.
Taxes which have been expected to be collected in the current year, but fail to do so are to
be recorded in this account.
✓ Tax Lien-Receivable: is used to record taking possession of goods on which an
owed tax has not been paid. This account is used to record the total amount of tax
liability that a tax payer fails to pay on the due date, including penalty and interest, for
which the taxing agency seized his/her/it‘s property.
✓ Interest and Penalties Receivable on Delinquent Taxes: is used, obviously, to record
interest and penalties due on unpaid taxes.
Liability Accounts
✓ Deferred Taxes: account of credited for taxes which are paid in a year before they may
legally be used for expenditure.
✓ Trust for Property Owners: If those possessed goods are sold in an attempt to
cover the tax any additional cost incurred in collecting it, the Trust for Property
Owners account is used to record any balance remaining from the selling price after the
tax and collection cost are deducted.
Contra Asset Account
Allowance for Uncollectible Taxes: is used for recording the estimate of taxes
which the government will not be able to collect. As there is no profit to determine,
no expenses will be recognized. Hence, Bad debt expense is not used for taxes.
Rather any uncollectible taxes are accounted for as a reduction in revenue
and the balance is to be recorded in a contra asset account called Allowance for
Uncollectible Taxes. Note that this is different from FP accounting

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 2. Licenses and permits
Licenses and permits may be divided into two categories.
a) Business - like merchants licenses, customs clearing Agency licenses,
professional (physician, attorney)
b) Non business - like driving licenses, hunting license, Residential permits
Revenue from licenses & permits are accounted on the cash basis.
3. Intergovernmental Revenue
Intergovernmental revenues include Grants, Entitlements & Shared Revenues.
a) Grant is money, which is given for a specific purpose & it should be classified according to
both its source & it purpose. A grant could be given from the federal governmental to regional
state government (called a subsidy) or from a foreign government to the federal government.
Grants can be divided into two types.
b) Shared revenues is a revenue levied by one government but shared on a predetermined basis,
often in proportion o the amount collected at the local level, with another government or class of
government.
Entitlement is the amount of payment to which a state or local government is entitled as
determined by the federal government pursuant to an allocation formula
4. Charges for services
Charges for services include revenue from charges for all activities of a governmental unit,
except the operations of enterprise funds.
E.g. court costs, special parking meters.
It should be recognized as revenue when earned, if that is prior to the collection of cash.
5. Fines & forfeits
Fines & forfeits are penalties, which are paid to governmental unit, usually as punishment for
violating the law. It is accounted thorough cash basis.
6. Miscellaneous revenue
Any revenue types that do not fit one of the above five classifications
E.g. interest income on investments – should be accrued
✓ Sales of fixed assets
✓ Insurance claim
✓ Contribution from private individuals
REVENUE FROM NON EXCHANGE TRANSACTION (IPSAS 23)
An exchange or exchange-like transaction is one in which each party receives and sacrifices
something of approximate equal value.

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 This Standard addresses revenue arising from non-exchange transactions
Non-exchange transactions are transactions that are not exchange transactions. In a non-
exchange transaction, an entity/Government receives or gives value from another entity
without directly giving or receiving value to another entity without directly receiving
approximately equal value in exchange.
While revenues received by public sector entities arise from both exchange and non-exchange
transactions, the majority of revenue of governments and other public sector entities is typically
derived from non-exchange transactions such as:
a. Taxes;
b. Transfers (whether cash or non-cash), including
✓ grants,
✓ debt forgiveness- lender forgives some or all of the debt you still owe
on a loan
✓ fines,
✓ bequests- gifts that are made as part of a will or trust
✓ Gifts, donations, and goods and services in-kind.
All these items have the common attribute that they transfer resources from one entity to another
without providing approximately equal value in exchange and are not taxes as defined in this
Standard
Classes of Non-exchange Transactions
Revenue from non exchange Revenue derived tax revenues; imposed non exchange
revenues; government-mandated non exchange transactions; and voluntary non
exchange transaction
1. Derived Tax Revenues – Examples: Sales taxes, Personal and Corporate income taxes excise
taxes, and similar taxes on earnings or consumption. In a derived tax revenue transaction, a tax
assessment is imposed because an underlying exchange takes place. When a sale occurs and a
sales tax is imposed or when income is earned and an income tax is assessed.
2. Imposed Non-Exchange Revenues – Examples: Property taxes, fines and penalties,
forfeitures. These are viewed as imposed non-exchange revenues because the government
imposes an assessment without existence of underlying transaction. Real estate or other property
is owned and a property tax is levied each period. Ownership is being taxed by the government
and not a specific transaction.

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 3. Government Mandated Non-Exchange Transactions – grants that are conveyed from
higher government to lower government to help pay for the costs of required programs (e.g.
certain education, social welfare, transportation services mandated and funded by a higher level
of government).
4. Voluntary Non-Exchange Transactions – in this final classification, money has been
conveyed willingly to the state or local government by an individual, another government, or an
organization usually for a particular purpose. Examples: grants and entitlements from higher
level of government and certain private donations
Inter-fund transactions and transfers
Inter fund transactions are transactions between individual funds .Inter fund transactions are
transactions between different entities within the governmental unit. As such, they need to be
recorded in two different sets of books. The five types of inter fund transactions commonly
encountered in governmental accounting are listed, defined, and illustrated below
1) Inter fund loans & advances
Often funds sometimes loan or advance money to each other in order to use idle cash effectively.
Short Period (one year or less is commonly used), the borrowing is called a loan;; the money is
only temporarily transferred and must be repaid. Since each fund is a fiscal entity, these inter
fund payables and receivables must be disclosed in the financial statement of each fund
involved. For longer periods, the borrowing is called an advance.
advance.
Due from SRF xxx
Cash xxx
Cash xxx
Due to the GF xxx
For example, if the general fund loaned 50,000 Birr to a special revenue fund, the
entries required would be:
On the books of the general fund
Due from the special Revenue fund 50,000
Cash 50,000
On the books of the special revenue fund

Cash 50,000
Due to the General fund 50,000
(To record a loan from the general fund)
Inter fund loans and advances are not increases or decreases in f und net assets. On the
creditor fund‘s books they only move resources from one current asset (cash) to another
(Due from…). On the debtor fund‘s books, they increase a current asset (cash) by increasing a

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 current liability (Due to..). In both cases, the effect on net assets is zero. As such inter fund loans
and advances are not closed at the end of the year
2) Quasi –external transaction
These are transactions that would be treated as revenues, expenditures, or expenses if
they involved organizations external to the governmental unit. Examples of quasi-external
transactions include:

• Internal service fund billings to other funds for services provided

• Routine employer contributions from the general fund to a pension trust fund
• Routine service charges for services provided by an agency to another agency

They are the only type of inter fund transaction which is considered as revenue and
expenditure within the entity. These transactions are typically between an internal service fund
and the general or a special revenue fund. The fund giving the service recognizes revenue;
the fund receiving the service recognizes expenditure. An example of a quasi-external
transaction is a shared garage for the governmental unit which repairs any of its cars regardless
of which fund is responsible for it. The garage will charge the respective fund for work
done, and recognize revenue from it. The fund which is responsible for the vehicle recognizes
expenditure. The quasi-external transactions are recognized as revenue and expenditure only on
the individual and (sometimes) combining fund statements. These transactions are eliminated on
the combined statement of the government unit, and not included as revenue or expenditure for
the unit as a whole.
GF
Expenditure xxx
Due to ISF xxx
SRF
Due from GF xxx
Revenues xxx
If a car repair of 1,000 Birr was done to a vehicle the general fund was responsible by internal
service fund, the following entries would be needed
On the books of the General Fund
Expenditures 1,000
Due to Internal service Fund 1,000
On the books of the Internal service fund
Due from the General fund 1,000
Revenues 1,000

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 The revenues and expenditures arising from quasi-external transactions are closed simply as part
of closing the other revenues and expenditures for the year. Due From accounts are not closed,
because they are balance sheet accounts.
3) Reimbursements
✓ Expenditures made by it on behalf of another fund i.e. one fund pays a bill on behalf of
another & is then reimbursed.
✓ Reimbursement is money you get back from a previous transaction you have made
while buying something for yourself or making a payment on behalf of a third party.
Expenditure xxx
Cash xxx
= To record payment of bill on behalf of ---
---
Cash xxx
Expenditure xxx
= To record reimbursement

For example, the Ministry of Health operates clinic in Addis Ababa and South Omo. The Addis
Ababa Clinic, for convenience, might pay a bill of 3000 Birr for medicine on behalf of South
Omo clinic. The South Omo clinic would then reimburse the AA clinic. The AA clinic would
charge expenditure at the time of purchase, and then credit expenditures to zero (0). Payment of
the reimbursement would then create expenditure for the South Omo clinic.
On the books of the AA Clinic
Expenditure 3,000
Cash 3,000
(To record payment of bill on behalf of south Omo clinic)
Cash 3,000
Expenditure 3,000
(To record reimbursement from south Omo clinic)
On the books of the South Omo Clinic
Cash 3,000
Expenditure 3,000
(To reimburse the AA clinic for medicine purchase)
Any expenditures arising from reimbursement transactions are closed simply as part of
closing the other revenues and expenditures for the year. No special attention is given to
reimbursements in the year-end closing process.
4) Residual Equity transfers
Residual Equity transfers are non-recurring or non-routine transfers of equity between funds
made in connection with the formation, expansion, contract or discontinued of a fund. not only
are they not Revenues or Expenditures, they are not Other Financing Sources or Uses, even
though they are technically increase / decreases in fund financial resources..
Equity transfer out xxx
Due to ISF xxx
Due from GF xxx
Equity transfer in xxx

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 For example, the GF might transfer the amount of 10,000 Birr to an internal service fund to open
a central supply store.
On the books of the General Fund
Equity Transfers Out 10,000

Due to Internal Service fund 10,000

On the books of the Internal Service Fund
Due from the General Fund 10,000

Equity transfers In 10,000

5) Operating transfers
Operating transfers are made in connection with the normal operation of the recipient fund. They
are legally authorized transfers from a fund, which receives revenue to the fund through which
the resources are to be expended. These transfers are other financing source of the receiving
fund, other financing uses of the paying fund..
Other Financing Uses-Operating Transfers Out xxx
Due to DSF xxx
Due from GF xxx
Other Financing Sources-Operating Transfers In xxx
For example, the general fund may make an annual transfer of 8,000 Birr to a Debit service Fund
for payment of interest on a general long-term debt. At time the transfer is authorized, the
following entries are needed:
On the books of the General Fund
Operating Transfers Out 8,000
Due to Debt Service fund 8,000
(To record a transfer to the debit service fund)
On the books of the Debit service fund
Due from General fund 8,000
Operating Transfers In 8,000
(To record a transfer from the general fund)
These transfers are similar to (residual) equity transfers in that they increase the net assets of the
receiving fund, and decrease the net assets of the giving fund. Therefore, they also must be
closed to fund balance at the end of the year
- 4 & 5 are properly called transfers & 1,2,3 are merely transfers.

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