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CHAPTER THREE
EXPENDABE FUND- General and Special revenue Funds

Budgetary accounts
There are five general ledger budgetary accounts. They are controlling accounts.
1. Estimated Revenues: The amount of revenue expected to be collected next year from
different sources of revenue by governmental unit. The estimated revenue account should be
debited at the time of estimation and fund balance would be credited. Each source of revenue
should be reported in Subsidiary ledger for controlling purpose.

Estimated revenue (subsidiary ledger)

 Taxes License and permits

 Inter governmental revenues Charges for services

 Fines and forfeits Miscellaneous

1. Appropriation; is an account used to record the proposed expenditures to be spent in

the future as per the time stipulated in the budget. When budget is adopted,
appropriation for the total estimated will be credited because it is a pseudo liability
and fund balance would be debited; appropriation reduces the amount of fund
balance.
Appropriation (subsidiary ledger) - General government, public safety, public works,
public health, culture and recreation, Inter governmental expenditure, Miscellaneous.

2. Estimated other financing sources; The amount of resources estimated in advance

by governmental unit to finance its activities/ deficits and recorded on the debit side.

3. Estimated other financing uses; they seems a kind of estimated expenditures but
actually not part of estimated expenditures and recorded on credit side

4. Encumbrance; is a commitment for expenditures (recorded when a purchase order is

sent or contract is signed). This account is established to record the amount of
purchase order/contract signed. When purchase order is made, encumbrance account
will be debited & an offsetting account reserve for encumbrance will be credited.

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Estimated revenue and Estimated other financing sources may be considered as pseudo asset
controlling account because they reflect resources expected to be received by the general
fund during the fiscal year and does not fit the exact definition of asset as a probable future
economic benefit arising from past transaction or event.

The appropriation and estimated other financing use ledger account may be considered as
pseudo liability controlling account because they do not reflect the legislative bodies
commitment to expend general fund resources as authorized in the annual budget. Or these
accounts are not genuine liabilities because they do not fit the definition of a liability as a
probable future scarifies of economic benefit arising from present obligation of a particular
entity.

All controlling accounts ( Estimated Revenue, Appropriation, Other financing source, Other
financing use are memorandum accounts useful for controlling purposes only and will be
closed at the end of the year or after issuance of year-end financial statement.

The budgetary fund balance ledger, as title implies, is an account that balances the debit and
credit entries to account for a budgetary journal

Example; Assume the following annual budget for a general fund of a governmental unit is
given below for the year 1999;

1. Estimated revenues

 Taxes------------------------------882500

 License & permits---------------125500

 Inter governmental revenue---200000

 charges for services--------------90,000

 Fines and forfeits------------------32000

 miscellaneous revenue------------19500 1350000

Appropriation

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   Gen. Administration     258000

   public Safety    554600
   Health and welfare        228400
   Culture and recreation  184500
1225500

Excess of estimated revenue over appropriation ------------------------------------------124,500

Other financing source (uses);

Operating transfer In ----------------------------------------------30000

Operating transfer out------------------------------------------------- (44500) (14500)

Estimated revenue-appropriation + other financing source (uses) ------------------------110000

Fund balance beginning, 1999-------------------------------------------------------------------50,000

Estimated fund balance, end, 1999--------------------------------------------------------------

160,000

Journal entries

Estimated revenue……………………………16,600,000

Fund balance …………………………………………………………16,600,000

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Example; Assume the following annual budget for a general fund of Aksum town administration is
given below for the year 1999;

1. Estimated revenues

 Taxes------------------------------882500

 License & permits---------------125500

 Inter governmental revenue---200000

 charges for services--------------90,000

 Fines and forfeits------------------32000

 miscellaneous revenue------------195001350000

Appropriation

   Gen. Administration     258000

   public Safety    554600
   Health and welfare        228400
   Culture and recreation  184500
1225500
 

Excess of estimated revenue over appropriation ---------------------------------------------124500

Other financing source (uses);

Operating transfer In ----------------------------------------------------------30000

Operating transfer out-------------------------------------------------------- (44500)(14500)

Estimated revenue-appropriation + other financing source (uses) ---------------------------110000

Fund balance beginning, 1999-------------------------------------------------------------------------50,000

Estimated fund balance, end, 1999----------------------------------------------------------------------160,000

Journal entries

1. Estimated revenue……………………………1,350,000

Fund balance …………………………………………………………1, 350,000

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2. appropriation…………1, 250,500

Fund balance……………………….1, 250, 000

3. Estimated other financing sources…….30,000

Fund balance…………………………………………………………….30,000

4. Fund balance………….44, 500

Estimated other financing uses….44, 500

Accounting for revenue

To account for the actual revenue collected, it has to be made after appropriate journal entries
for the budgetary accounts have been made. Either accrual, cash or modified accrual base
should be used in recognizing revenues. Under the accrual basis, only those revenues that are
expected to accrue such as property taxes are recognized. All other sources of revenues are
accounted for using cash basis of accounting.
If revenues are collected in the form of cash during a given period;
Cash……………………………………….xxx
Revenue……………………………xxx
If revenues are recognized on the accrual basis of accounting;
Receivable…………………..xxx
Revenue………………..xxx
Example; assume that the general fund of a governmental unit for which the budgeted amount
illustrated earlier are collected in the form of cash in the month of Feb,1999 from the following
sources;
 License and permits ……………….120,000
 Intergovernmental revenue………..200,000
 Charges for services………………..300,000
 Fines and forfeits…………………….20,000
General Ledger
Cash…………………………………450,000
Revenue……………………….450, 000
Subsidiary ledger
Dr Cr
License & permits 120,000
Intergovernmental revenue 200,000

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Charges for services 300,000

Fines and forfeits 20,000
After actual revenues are recorded comparison should be made between the estimated revenue
subsidiary ledger and revenues subsidiary ledger. If any material difference between the actual
revenue of each source and estimated revenue is figure out, investigation should be made to
determine whether;
a. Estimated were made on the basis of assumption that might have appear realistic when
the budget were prepared, but if no longer are realistic then budget needs revision
b. Action should be taken so that revenues estimated with reasonable accuracy are
actually realized. ( employees may fail to collect some revenues)
Source; License & permits
Date Transaction Estimated revenue Actual revenue Balance
Jan, 1 Estimated revenue 400,000 - 400,000
Feb, 6 Collection _ 120,000 280,000

Accounting for Inter fund transfers

During a given fiscal year, there could be transfer of fund from one fund to another fund in
the same fund category or different category.

1. Inter fund Loans and Advances

Inter fund loans are resources provided from one fund to another with the requirement for
repayment. The fund providing the resources records an inter fund receivable (Due from Other
Funds) and the fund receiving the resources records an inter fund payable (Due to Other
Funds). Long-term loans use the terms Advance toOther Funds and Advance from Other
Funds. Inter fund loan receivables and payables are separately reported on the balance sheets
of the affected funds.
Example;The General fund loaned $50,000 to Special revenue fund
General Fund Special revenue fund
Due from SRF…….50, 000 Cash………..50,000
Cash…………………50,000 Due to GF…………50, 000

2. Quasi-external transactions
Quasi-external transactionsrepresent transactions involving sales and purchases of goods and
services between funds. An example is the sale of water from a water utility (enterprise) fund
to the General Fund. In these transactions, one fund records revenue (enterprise, in this

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example) and the other fund records an expenditure or expense (the General Fund). The most
meaningful form of reporting for such transaction is to report expenditure in the fund receiving
the services and report revenues in the fund providing the services because the fund receiving
the services would have had to charge expenditures, if it had obtain the services for an
organizations external to the governmental unit.

Expenditure ……………………XXX
Due to fund (desired)…………….. XXX
(to record on the book of service receiving fund)
Due from the fund (desired)…………………...XXX
Revenue ………………………………………..XXX
( to record on the book of service providing fund)
Example; the general fund of the governmental unit received the services from the
internal service fund amounting $1000.
General fund Internal service fund
Expenditure…….1000 Due from GF…….1000
Due to ISF…………1000 revenue………………1000
If cash is paid by GF to the ISF
Due to ISF…….1000 Cash……..10,000
Cash……………………1000 Due from GF………….1000
Water utilities ordinarily provide a city with fire hydrants and water service for fire protection
at a flat annual charge. A government-owned water utility expected to support the cost of its
operations by user charges should be accounted for as an enterprise fund. Fire protection is
logically budgeted as an activity of the fire department, a General Fund department. Assuming
that the amount charged by the water utility to the General Fund for hydrants and water service
was $80,000, the General Fund entry would be as follows:
Expenditures Control . . . . . . . 80,000
Due to Water Utility Fund . . . . . . . …... 80,000

Due from GF………..80,000

Revenue……………………..80,000

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The account Due to Water Utility Fund is a current liability. Another common transaction for
the General Fund is the receipt of supplies or services from an internal service fund established
to provide purchasing and distribution services to other government departments. Assume that
the General Fund received $377,000 in supplies from the Supplies Fund and later made a
partial payment of $322,000 in cash. The entries would be as follows:
Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377,000
Due to Supplies Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377,000

Due to Supplies Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322,000

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322,000
3. Reimbursements
Reimbursementsare transactions that reimburse a fund for expenditure made by it on behalf of
another fund. That is one fund pays a bill on behalf of another and is than reimburses it.
Interfund reimbursements represent repayments to the funds that initially recorded
expenditures or expenses by the funds responsible. For example, assume the General Fund had
previously debited expenditures to acquire some supplies, but the supplies should have been
charged to a special revenue fund.
Example; a general fund might pay $3000 for the total rental on facility used by special
revenue fund
General fund Special revenue fund
Expenditure……..3000 no entry is required
Cash ……………………3000
At the time of re-imbursement
Cash……..3000 expenditure……3000
Expenditure…..3000 cash…………….3000
4. Residual equity transfers
Residual equity transfers are non-recurring or non routine transfers of equity between funds
made in connection with expansion, contraction or discontinue of a fund (involving the general
fund & one proprietary fund). They are not classified as revenues or expenditures but they are
classified as other financing sources or uses, even through they are technically
increase/decrease in fund financial resources.
Example;Suppose the federal government has decided to transfer fund equity after successful
completion of the TekezeHydro electric project that has been under construction for the last 10

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years. Assume that 100,000 have been transferred from the capital project fund to the
general fund.
General fund
Cash ----------------100,000
Equity transfer in---------------100,000
Capital Project fund
Equity transfer out--------100,000
Cash-------------------100,000

5. Operating Transfer (Inter-fund transfers)

These are recurring or routine periodic transfers made primary for the purpose of shifting
resources from one fund to another. Transfers during the operation or a transfer made for
operational purpose.

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 and other financing uses of the paying fund.

Other financing uses (operating transfer out) ---- XXX

Due to the fund (desired)………………………………….XXX
Due from fund (desired) --------------------------------- XXX
Other financially sources (operating transfer in) --------- XXX

Assuming that the General Fund made the budgeted transfer to a Debt Service Fund for the
payment of debt service, the General Fund entry would be as follows:’
General fund debt service fund
Other Financing Uses—Transfers out . . . 204,000 due from GF ……204,000
Due to Debt Service Fund . . . . . . . . . . 204,000 operating transfer in…….204, 000

When the cash is transferred, the entry would be as follows:

Due to Debt Service Fund . . . . . . . . . . . 204,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . 204,000

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Illustrative transactions
On December 31, 2000, the general fund of the city of Awassa had the following balance sheet.
CITY Awassa
GENERAL FUND- BALANCE sheet
December 31, 2000

Assets
Cash…………………………………………………………190, 000
Tax receivable delinquent…………………660, 000
Estimated uncollectible delinquent tax …..(50,000) 610,000
Interest & penalty receivable on tax ……………..13, 200
Estimated uncollectible interest & penalty on tax…(3,300)9,900
Total assets 809,900
Liabilities & Fund equity
Voucher payable ………………………………..320,000
Due to federal government…………….................90,000
Total liabilities 410,000
Fund Equity
Reserve for Encumbrance ……………………127, 000
Fund balance………………………….............272,900
Total Fund equity 399.900
Total liabilities& fund equity 809,900
Transaction 1- The following budget for the general fund of the city was adopted for the year
2001 fiscal year.
Estimated revenue
Property tax 2,600,000
Interest & penalty on delinquent tax 13,000
Sales taxes 480,000
License & permits 220,000
Fines & forfeits 308,000
Intergovernmental revenue 280,000
Charges for services 70,000

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Miscellaneous revenue 15,000

3,986,000

Appropriation
General Administration     660,000       
Health &welfare 860,000
 Public Works   910,000
Public safety                 1,240,000
Culture/Recreations     315,000
Contribution to retirement plan 180,000
Miscellaneous appropriation 15,000
4,180,000

Estimated revenue……………3,986,000
Fund balance……………………194, 000
Appropriation………………………..4, 180,000
Transaction 2- taxes anticipation notes in the amount of $700,000 were issued
Cash…………700,000
Tax anticipation notes payable….700, 000
A given government unit may issue notes and borrow money and latter it will be paid out from
the tax levy is called tax anticipation notes
Transaction 3- purchase order were issued against the appropriation in the following amount
General administration 28,000
Public safety 72,000
Public works 160,000
Health & welfare 36,000
Parks & recreation 10,000
Miscellaneous 450
306,450
Encumbrance………306,450
Reserve for encumbrance…………..306,450
Transaction 4- Checks were written drown to pay the voucher payable and the amount due to
federal government as of December 31, 2000
Voucher payable………………..320, 000

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Due to federal government……..90,000

Cash…………………………410,000

Transaction 5- The general fund payroll total 840,000br, of this amount 148,260br was withheld for
employees’ federal government income taxes & 16,800br was withheld for
employees’ state income tax.
Expenditure………….840, 000
Due to federal government…………148,260
Due to state government………………16,800
Voucher payable………………………674, 940
Transaction 6- The payment of voucher for the net pay amounted 674,940br
Voucher payable………..674,940
Cash…………………………..674,940
Transaction 7- Liabilities for the city’s share of income tax amount to 64,260br for federal
government &18,000br for state government was recorded.
Expenditure……..82,260
Due to federal government……64,260
Due to state government……….18, 000
Transaction 8- the general property taxes debit in the amount of 2, 708, 333br was made. It is
estimated that 4% of tax will be uncollectible
Tax receivable current……….2, 708,333current and credit to allowance
for un-collectible current taxes and to revenue
The allowance for uncollectible taxes is the portion of the tax levy not expected to be collected.
When specific amounts are discovered (proved) to be uncollectible, they are written off by
charging or debiting to allowance for uncollectible account and crediting to tax receivable
account as indicated below.
Allowance for uncollectible account-------------xxx
Tax receivable current tax--------------------------xxx
Transaction 9- invoice for some of purchase order in transaction 3 were received and
approved for payment. The functions affected are;
Actual Estimated
General administration 23,300 12,500
Public safety 72,000 72,000
Public works 105,600 150,900

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Culture & recreation 10,000 10,000

Health & welfare 4100 4175
Miscellaneous appropriation 450 450
249,450 249,750
Reserve for encumbrance……..249,750
Encumbrance…………………………249,750
Expenditure………249, 450
Voucher payable……………………249, 450
Transaction 10- The general fund collected the following revenue in cash
License & permits 100,000
Fines & forfeits 151,000
Charges for services 7000
Miscellaneous 1200
259,200
Cash………….259, 200
Revenue…………….259, 200
Transaction 11- Because of taxpayers' delinquencies in payments of the first instalment of
taxes, additional penalties of 600br were levied out not yet collected
Interest & penalties on delinquent taxes…….600
Revenue………………………………………..600
Delinquent taxes are subject to interest and penalties
Transaction 12- Delinquent tax receivable in the amount of 440,000 was collected. Interest &
penalties already recorded as receivable amounting to 9,900br was also collected.
Cash…………449,900
Tax receivable delinquent………………….440, 000
Interest & penalties on delinquent taxes………9, 900
Due to number of reasons, the tax payers may fail to pay their tax liabilities during the current
period then the tax is said to be delinquent. The word delinquent is used to show amount of tax
supposed to be collected in the current year but due to many reasons, have not been actually
collected. If the certain portions of the current taxes are not collected in the current year, tax
receivable current should be converted to tax receivable delinquent tax.
Later when the taxes become delinquent an entry is made
Tax receivable Delinquent ----------------------------------xxx
Allowance for un-collectable current tax ---------------- xxx

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Tax receivable current ------------------------------------------- xxx

Allowance for un-collectable delinquent -----------------------xxx
Transaction 13- Discovered an error in levying property tax. The correct property tax bill is
364br less than the original bill.
Revenue…………..364
Tax receivable…………..364

14. The city council revised the budget for the current year as follows;
Estimated revenue Appropriation
Charges for services…………..5000 public works….. (50,000)
Miscellaneous revenue………..10,000 public safety…...80,000

Estimated revenue…………….15, 000

Fund balance………………………..15,000
Appropriation…………………………30,000
15. Property taxes collected in cash amounted 2, 041, 668br
Cash………….2, 041,668
Tax receivable-current……….2, 041,668
16. Tax anticipation notes issued by the general fund were paid at maturity at face amount plus
interest of $13,500
Tax anticipation notes payable……….700, 000
Expenditure……………………………………………..13,500
Cash…………………………………………….713, 500
17. Current tax receivable and related estimated uncollectible were transferred to delinquent
category
Tax receivable delinquent………..666, 665(2, 708,333-2, 041, 668)

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Estimated uncollectible tax current…1o8, 333

Taxreceivablecurrent……………………………………….666, 665
Estimated uncollectible delinquent………………………………………
1o8, 333
18. Fiscal inventory of supplies at December 31, 2001 showed a total of 61,500br (purchase vs.
Consumption)
Supply……………………….61, 500
Expenditure…………..61,500
19. Property tax of 26,300br & interest and penalties of 1,315br were written off b/c of in
ability to locate the property owners.
Allowance for uncollectible tax receivable………………..26, 300
Allowance for uncollectible interest & penalties………..1, 315
Tax receivable
delinquent…………………………………………………26,300
Interest & penalties on delinquent tax……………………………1,315

Assume, during the six months ended October 31,2001, the first six months of fiscal year 2002,
the following transactions, in summary form with subsidiary ledger detail committed, occurred:
1. The budget for fiscal 2002 provided for General Fun Estimated Revenues totaling
$3,170,000 and appropriations totalling $3,100,000
Estimated revenue……………3,170, 000
Appropriation……………………….3, 100, 000
Fund balance………………………….70, 000
2. Taxes anticipation notes in the amount of $300,000 were issued.
Cash…………….300, 000
Tax anticipation notes payable….300, 000
3. The general property taxes debit in the amount of 2,150,000br was made. It is estimated
that 4% of tax will be uncollectible
Tax receivable-current…….2, 150,000
Estimated uncollectible tax receivable-current…. 86000
Revenue……………………………………2,064,000
4. Purchase orders, contracts, and so on, in the amount of $1,027,000 were issued
Encumbrance…………1, 027,000
Reserve for encumbrance……………1, 027, 000

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5. Delinquent tax receivable in the amount of $340,000 was collected and Interest &
penalties already recorded as receivable amounting to 13,240br were also collected.
Further more, $1,034,000 of current taxes was also collected.
Cash 1,3872,40
Taxes receivablecurrent 1,034,000
Taxes receivabledelinquent 340,000
Interest and penalties receivable 13,240
6. The general fund payroll total 481,070br, of this amount $20,000br was withheld for
employees’ state income taxes & $98,000br was withheld for employees’ federal
income taxes, the balance was paid in cash
Expenditures 481,070
Due to federal government 98,000
Due to state government 20,000
Cash 363,070
7. Because of taxpayers' delinquencies in payments of the first instalment of taxes,
additional penalties of $15,230 were levied out not yet collected
Interest and penalties receivable…..15,230
Revenues………………………..15,230
8. Revenues from sources other than taxes were collected in the amounts of $339,000
Cash………….339, 000
Revenue………….339, 000
9. Amounts due to the federal and state government withholding taxes during the period
were
Due to federal government 98,000
Due to state government 20,000
Vouchers payable 118, 000
10. Purchase orders and contracts encumbered in the amount of $890,800 were filled at a
net cost of $894,9000, which was vouched
Reserve for encumbrance………..890, 000
Encumbrance……………………………...890, 000
Expenditure……………….894, 900
Voucher payable……………………894,000
11. All voucher payable recorded above was paid cash was paid
Voucher payable……….1, 012,900

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Cash………………………..1, 012, 900

12. The tax anticipation note of $ 300,000 was paid

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