Fund Accounting

Jim Corkill
Accounting Services & Controls
November 2011

Agenda
Goals/Objectives
Definitions
Fund Groups
Budgeting
Financial Statements

Goals
Concepts of fund accounting
Understanding the various fund groups
How are we different than a profit

organization?

What is Fund Accounting?

A method of segregating resources into
categories (i.e., funds), to identify both the
source of funds and the use of funds.

Objectives of Fund Accounting

Demonstrating accountability and

stewardship
Determining financial condition
Planning and budgeting

Objectives of Fund Accounting

Evaluating organizational and

managerial performance
Determining/forecasting cash flow
Communication

Definitions
Fund: A fund is a segregation of resources
established to control and monitor resources
and to help ensure and demonstrate
compliance with legal/administrative
requirements.

Definitions
Fund Balance: Equity within a fund.

Assets = Liabilities + Fund Equity

Fund Assets Fund Liabilities = Fund Balance
Assets Claims Against Assets = Fund Balance

The fund balance may also be known as

Net Assets, Capital, or Net Worth.

Chart of Accounts
How do we track the sources and uses

of funds?

Definitions
Fund Group: A separate entity with a selfbalancing set of accounts consisting of
assets, liabilities, fund balance, and, where
appropriate, revenue and expenditure
accounts.

Fund Groups
Six basic fund groups:
Current Fund
Plant Fund
Endowment & Similar Funds Group
Annuity & Life Income Group
Loan Fund
Agency Fund

Current Fund
Group of funds expendable for operating purposes
in support of the institutions mission; expected to
be expended in the near term.
Unrestricted
Restricted
Designated Funds

Current Fund
Unrestricted Funds: Includes all funds received in
which a donor or other external agency has not
specified the purpose(s) for which the funds should
be expended.
Examples:
General funds
Reg. Fee funds
Unrestricted gifts (RARE)

Current Fund
Restricted Current Funds: Includes funds
available for financing operations, but that are
limited to specific purposes, programs, or
departments specified by donors or external
agencies.
Examples:
Federal funds for contracts & grants
Work Study funds
Endowment income

Current Fund
Designated Current Funds: Unrestricted
funds the governing body designated for a
special purpose.
Examples:
Special State Appropriations
Tobacco Research
Breast Cancer Research

Scenario #1
For each of the fund numbers and titles

listed, mark the fund either:

a) Restricted
b) Unrestricted
c) Designated
For each transaction, assign the

appropriate fund number.

Plant Fund
The plant fund group is used to record
acquisition of assets, replacement of assets,
pay off debt, and record the investment in
assets (equity). There are four subgroups of
plant funds:
Unexpended Plant Funds
Renewal and Replacement
Retirement of Indebtedness
Investment in Plant

Plant Fund
Unexpended Plant Fund: Used for
recording construction or acquisition of
long-lived assets. This includes items such
as:
Land and building acquisition
Construction of new facilities
Renovation
Remodeling

Plant Fund
Renewal and Replacement: Used for
extraordinary repairs and maintenance or
equipment replacement.
Retirement of Indebtedness: Used to
record the accumulation of funds and
disbursement for repayment of long term
debt for assets.

Plant Fund
Investment in Plant: Used to record the
equity of campus assets. This subgroup in
plant should reflect the total amount of
resources expended for additions to
assets.

Discussion #1
For each transaction or situation, name the
correct fund (Current or Plant) where it
should be recorded.

Endowment & Similar Funds

This fund group is used to record
donations to the University which require
that the principal is invested and only the
interest income is expendable. Interest
income earned on these funds is returned
to the campus and expended in the current
funds group.

Endowment & Similar Funds

There are four types of endowments:
1)True Endowments (or Permanent
Endowments):
Donors have stipulated that the principal
of the gift is to remain in perpetuity and
is to be invested for the purpose of
producing present and future income.

Endowment & Similar Funds

Four types of endowments, contd:
2)Funds Functioning as Endowments:
The governing board of the institution,
rather than the donor or other external
agency, has determined that funds
(usually a gift) are to be retained and
invested as an endowment.
Large amounts - usually $50,000.

Endowment & Similar Funds

Four types of endowments contd:
3)Funds Held in Trust by Others:
These are funds derived from private
gifts and bequests that are held in trust
for investment by outside trustees, and
the University is designated as the
income beneficiary.

Endowment & Similar Funds

Four types of endowments contd:
4)Living Trusts, Annuity Trusts, and
Unitrusts:
These are donations where the terms stipulate
that income must be paid to a designated
beneficiary for a specified period, which in most
cases is the duration of the beneficiarys life. At
the end of the specified payment period, income
from these funds reverts to the University.

Annuity & Life Income Funds

Annuity: Institution is obligated to pay
stipulated amounts periodically to the
donors beneficiary. When the agreement
terminates, the remaining funds become
property of the institution.

Annuity & Life Income Funds

Life Income: Established when a college/
university is the trustee and remainder for
a charitable remainder trust. Income and
expenses are paid to beneficiary for life.
Principal returns to the institution when
beneficiary dies.

Scenario #2
Your department has received a $150,000
gift to be used for operating expenses for
the Biology department. The chair asks
you to make a recommendation about
turning it into an endowment. What do you
need to consider to make the
recommendation?

Loan Fund
Used to record activity on funds available
for loans to students, faculty, and staff.
Examples include:
Student Financial Aid Loan Fund
Faculty Home Mortgage Loan
Staff Emergency Loan Fund

Agency Fund
Used to record funds held by the University
for outside groups who have a close
relationship with the University.
Funds in the Agency Fund group do not
belong to the Regents and are not reported
in the UC Financial Statements.

Agency Fund
Examples:
Scholarship funds
Fraternities and sororities
The UCSB Foundation
UCSB Alumni Association

Agency Fund
Accounting for Agency Accounts
Transactions are recorded as a balance
sheet item, not as income and expense.
To keep their accounting activity
separate, a special account series is
used.

Agency Fund
Accounting for Agency Accounts
During fiscal closing, any balances in
these agency accounts are transferred to
a balance sheet payable account.
Agency accounts affect the campus
STIP earnings. Therefore, the accounts
should have a positive or zero balance at
all times.

Financial Transfers Between

Fund Groups
Mandatory
Non-Mandatory
Temporary
Permanent

Budgeting
Budgets are the most widely used method
for control in colleges & universities.

Fund accounting assists in budget control

by providing information that enables:
Managers to review their expenditures to
ensure they are within their allocations. This is
also a Department Key Control for SAS 112.
Demonstration of compliance with funding
sources.

Budgeting
Budget entries are the reverse of financial
entries:
Revenue entries are budgetary debits.
Appropriations to expenditure accounts
are budgetary credits.

Encumbrances
In managing available resources in a

non-profit organization, we need to

recognize future commitments of
resources prior to an actual expenditure.
Encumbrances (or liens) are used to

reflect these commitments in the

accounting system and attempt to
prevent overspending.

Encumbrances
When the order/services are received

and the University is invoiced, the

original encumbrance entry is cancelled,
and the expense and related cash
payment is recorded.

Financial Statements
Purpose: To communicate financial
condition and operating results.

Internal Users
Managers
Analysts/Internal Auditors
Executive Campus Mgmt.
Office of the President
Regents

External Users
External Auditors
Creditors/Lenders
State Government
Other Colleges
Granting Agencies

Financial Statements
What do users want to know?
Is the institution financially healthy?
Is the institution financially better off or not at
the end of the year than it was at the
beginning?
How does the institution compare with
others?
Can the institution repay debt it may be
taking on?

Questions