Fund accounting - Knowledge

714:, and an annuity to award teachers working on research projects. At periodic intervals, the school system needs to generate a report to the state about the special education program, a report to a federal agency about the school lunch program, and a report to another authority about the research program. Each of these programs has its own unique reporting requirements, so the school system needs a method to separately identify the related revenues and expenditures. This is done by establishing separate funds, each with its own 31: 1948:. City government agencies are not allowed to spend the unexpended balance, even if their expenditures during the now-ended fiscal period were less than their share of the expired appropriation. A new appropriation is necessary to authorize spending in the next fiscal period. (Liabilities incurred at the end of the fiscal period for goods and services ordered, but not yet received, are usually considered 2440: 1152:. These assets and liabilities belong to the government entity as a whole, rather than any specific fund. Although general fixed assets would be part of government-wide financial statements (reporting the entity as a whole), they are not reported in governmental fund statements. Fixed assets and long-term liabilities assigned to a specific enterprise fund are referred to as 59: 698:), nonprofits can have more than one general ledger (or fund), depending on their financial reporting requirements. An accountant for such an entity must be able to produce reports detailing the expenditures and revenues for each of the organization's individual funds, and reports that summarize the organization's financial activities across all of its funds. 2455: 1072:, such as buildings, equipment and roads. Depending on its use, a fixed asset may instead be financed by a special revenue fund or a proprietary fund. A capital project fund exists only until completion of the project. Fixed assets acquired and long-term debts incurred by a capital project are assigned to the government's 1441:

by the mayor and city council of the City of Tuscany. For Fiscal Year 2009, which began on July 1, 2008, the Mayor's Office estimated general fund revenues of $ 35 million from property taxes, state grants, parking fines and other sources. The estimate was recorded in the fund's general ledger with a

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funds are used to account for money that will be used to pay the interest and principal of long-term debts. Bonds used by a government to finance major construction projects, to be paid by tax levies over a period of years, require a debt service fund (sometimes titled as "interest and sinking fund")

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When using the fund accounting method, an organization is able to therefore separate the financial resources between those immediately available for ongoing operations and those intended for a donor specified reason. This also provides an audit trail that all moneys have been spent for their intended

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Instead of re-applying the unspent balance from the general fund to the same programs, the city council may choose to spend the money on other programs. Alternatively, they may use the balance to cut taxes or pay off a long-term debt. With a large surplus, reducing the tax burden will usually be the

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Fund accounting distinguishes between two primary classes of fund.: those funds that have an unrestricted use, that can be spent for any purposes by the organization, and those that have a restricted use. The reason for the restriction can be for a number of different reasons. Examples include legal

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The city spent a total of $ 30 million on its employee payroll, including various taxes, benefits and employee withholding. A portion of the payroll taxes will be paid in the next fiscal period, but modified accrual accounting requires the expenditure to be recorded during the period the liability

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The complexity of an appropriation depends upon the city council's preferences; real-world appropriations can list hundreds of line item amounts. An appropriation is the legal authority for spending given by the city council to the various agencies of the city government. In the example above, the

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The accounting basis applied to fiduciary funds depends upon the needs of a specific fund. If the trust involves a business-like operation, accrual basis accounting would be appropriate to show the fund's profitability. Accrual basis is also appropriate for trust funds using interest and dividends

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During Fiscal Year 2009, the city assessed property owners a total of $ 37 million for property taxes. However, the Mayor's Office expects $ 1 million of this assessment to be difficult or impossible to collect. Revenues of $ 36 million were recognized, because this portion of the assessment was

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The unified budget deficit, a cash-basis measurement, is the equivalent of a checkbook balance. This indicator does not consider long-term consequences, but has historically been the focus of budget reporting by the media. Except for the unified budget deficit, the federal government's financial

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funds are used to account for assets held in trust by the government for the benefit of individuals or other entities. The employee pension fund, created by the State of Maryland to provide retirement benefits for its employees, is an example of a fiduciary fund. Financial statements may further

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funds are used for operations serving other funds or departments within a government on a cost-reimbursement basis. A printing shop, which takes orders for booklets and forms from other offices and is reimbursed for the cost of each order, would be a suitable application for an internal service

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requirements, where the moneys can only be lawfully used for a specific purpose, or a restriction imposed by the donor or provider. These donor/provider restrictions are usually communicated in writing and may be found in the terms of an agreement, government grant, will or gift.

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of accounting used by most businesses requires revenue to be recognized when it is earned and expenses to be recognized when the related benefit is received. Revenues may actually be received during a later period, while expenses may be paid during an earlier or later period.

1062:) funds are required to account for the use of revenue earmarked by law for a particular purpose. An example would be a special revenue fund to record state and federal fuel tax revenues, since by federal and state law the tax revenue can only be spent on transportation uses. 730:

Unrestricted funds are, as their name suggests, unrestricted and therefore organizations do not necessarily need more than a single General Fund, however many larger organizations use several to help them account for the unrestricted resources. Unrestricted funds may include:

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Nonprofit organization's finances are broken into two primary categories, unrestricted and restricted funds. The number of funds in each category can change over time and are determined by the restrictions and reporting requirements by donors, board, or fund providers.

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Nonprofit organizations and government agencies have special requirements to show, in financial statements and reports, how money is spent, rather than how much profit was earned. Unlike profit oriented businesses, which use a single set of self-balancing accounts (or

1239:. Since making a profit is not the purpose of a government, a significant surplus generally means a choice between tax cuts or spending increases. A significant deficit will result in spending cuts or borrowing. Ideally, surpluses and deficits should be small. 1378:

used by state and local governments for assets belonging to individuals and other entities, held temporarily by the government. State income taxes withheld from a federal government employee's pay, not yet paid to the state, are an example of deposit

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to account for their repayment. The debts of permanent and proprietary funds are serviced within those funds, rather than by a separate debt service fund. As with capital project funds, once the debt has been retired, the fund ceases to exist.

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should be used to report resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government's programs—that is, for the benefit of the government or its

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services. Program services are the mission-related activities performed by the organization. Non-program supporting services include the costs of fund-raising events, management and general administration. This is a required section of the

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for modified accrual accounting, are recognized when the related liability is incurred. Expenditures also include purchases of capital assets, and repayments of debt, which are not considered expenses in business accounting.

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See chapters 15–19 (p. 191–222) for a quick reference to journal entries and math useful for state and local government fund accounting. The "Funds Characteristics Tree" on p. 191 illustrates relationships between

886:. It shows the net results, by each fund, of the organization's activities during the fiscal year reported. The excess or deficit is shown as a change in fund balances, similar to an increase or decrease in owner's equity. 809:

are held to account for resources before they are disbursed according to the donor's instructions. The organisation has little or no discretion over the use of these resources and always equal liabilities in agency

738:– This is the minimum fund needed for unrestricted resources and relates to current as well as non-current assets and related liabilities which can be used at the discretion of the organisation's governing board. 852:. FASB issued a major update in 2016 that changed reporting net assets from three primary categories to two categories, restricted and unrestricted funds and how these are represented on financial statements. 2502: 2968:

When goods or services are received, the amount to be paid is debited to the expenditure account and credited to a liability (payable) account. Hay, p. 63. Transactions involving purchase orders involve

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An example may be a local school system in the United States. It receives a grant from its state government to support a new special education initiative, another grant from the federal government for a

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funds are used for services provided to the public on a user charge basis, similar to the operation of a commercial enterprise. Water and sewage utilities are common examples of government enterprises.

750:– Many large non-profit organisations now have shops and other outlets where they raise funds from selling goods and services. The profits from these are then used for the purpose of the organisations. 2760: 797:

are similar to permanent endowment funds except that at a future time or after a specified future event the endowment become available for unrestricted or purpose-restricted use by the organization

1216:(ACFR), the equivalent of a business's financial statements. An ACFR includes a single set of government-wide statements, for the government entity as a whole, and individual fund statements. The 1403:

Net operating (cost)/revenue, an accrual basis measurement, is calculated in the "Statements of Operations and Changes in Net Position" by comparing revenues with costs. The federal government's

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Proprietary funds, used for business-like activities, usually operate on an accrual basis. Governmental accountants sometimes refer to the accrual basis as "full accrual" to distinguish it from

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is an account which may be used for urgent expenditure in anticipation that the money will be approved by Parliament, or for small payments that were not included in the year's budget estimates.

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At the end of the fiscal year, the actual revenues of $ 36 million were compared with the estimate of $ 35 million. The $ 1 million difference was recorded as a credit to the fund balance.

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is the government's main borrowing and lending account. it is closely linked to the consolidated fund, which is balanced daily by means of a transfer to, or from, the national loans fund.

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is an accounting system for recording resources whose use has been limited by the donor, grant authority, governing agency, or other individuals or organisations or by law. It emphasizes

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has also been applied to investment accounting, portfolio accounting or securities accounting – all synonyms describing the process of accounting for a portfolio of investments such as

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Federal Accounting Standards Advisory Board (December 26, 2007). Definitions of elements and basic recognition criteria for accrual-basis financial statements for federal agencies.

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are resources provided by donors where the organization has a beneficial interest but is not the sole beneficiary. These may include charitable gift annuities or life income funds.

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or balance sheet. Similar to the balance sheet of a business, this statement lists the value of assets held and debts owed by the organization at the end of the reporting period.

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was approved by the city council, authorizing the city to spend $ 34 million from the general fund. The appropriation was recorded in fund's general ledger with a debit to

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The United States government uses accrual basis accounting for all of its funds. Its consolidated annual financial report uses two indicators to measure financial health:

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which distributes each expense of the organization into amounts related to the organization's various functions. These functions are segregated into two broad categories:

2055: 1952:, allowing payment at a later date under the current appropriation. Some jurisdictions, however, require the amounts to be included in the following period's budget.) 2941:

In the opening entries for a fiscal year, estimated revenues are recorded with a credit to the fund balance, while appropriations are recorded as a debit. Hay, p. 44.

2138: 744:– assets which have been assigned to a specific purpose by the organisation's governing board but are still unrestricted as the board can cancel the desired use. 2764: 2710: 2670: 2622: 3114: 1971: 1965: 1011: 830: 323: 948:

is the fund where all date-to-day revenues and expenses of the government are accounted. Each of the devolved governments also have a consolidated fund.

2270: 829:. These are generated in line with the reporting requirements in the country they are based or if they are large enough they may produce them under 308: 2235: 1977: 1217: 2109: 1884:

The city spent $ 31 million of its $ 34 million appropriation. A credit of $ 3 million was applied to the fund balance for the unspent amount.

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city can spend as much as $ 34 million, but smaller appropriation limits have also been established for individual programs and departments.

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In most jurisdictions, the budget is a legal document authorizing the government to incur debts, collect taxes and spend money. Hay, p. 20.

2143:"Companion Guide for Not-for-profits to the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs)" 841: 837:. If the organization is small it may use a cash basis accounting, but larger ones generally use accrual basis accounting for their funds. 658:

and each are reported as either unrestricted, temporarily restricted or permanently restricted based on the provider-imposed restrictions.

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In subsidiary ledgers, the appropriation would be divided into smaller amounts authorized for various departments and programs, such as:

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When the current fiscal period ended, its appropriation expired. The balance remaining in the general fund at that time is considered

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The following is a simplified example of the fiscal cycle for the general fund of the City of Tuscany, a fictitious city government.

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from invested principle amounts to pay for supported programs, because the profitability of those investments would be important.

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identifies the sources of cash flowing into the organization and the uses of cash flowing out during the reported fiscal year.

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Subsidiary ledger details are used to provide an appropriate level of budgetary control over government spending. Hay p. 43.

2913: 1295:, means that it conducts a continuing cycle of activity. There are two types of revolving funds in the Federal Funds Group: 1231:

to describe the net results of their operations. The difference between revenues and expenditures during a year is either a

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basis. This involves recognizing revenue when it becomes both available and measurable, rather than when it is earned.

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Deloitte Development LLC (2008). See "Challenges and Opportunities for Investment Funds" on p. 3. Retrieved 2010-05-17

756:– Some organizations hold their non-current assets and related liabilities in a separate fund from the current assets. 2319: 3100: 902:– just as for profit-making organizations, this shows the change in the organization equity over the year. Under 1313:

funds used by state and local governments for business-like activities conducted primarily with the public. The

685:. Investment accounting, however, is a different system, unrelated to government and nonprofit fund accounting. 2985:

Closing entries for a government's funds are similar to those of a for-profit business. The totals recorded in

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funds used by state and local governments for business-like activities conducted within the federal government.

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fund. This fund is used to account for general operations and activities not requiring the use of other funds.

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State and local governments have two other groups of self-balancing accounts which are not considered funds:

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that is an annual informational return required by the Internal Revenue Service for nonprofit organizations.

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the nonprofit organization can choose if it wants to produce this statement or not; some do, and some do not.

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are earmarked for specific programs and purposes in accordance with a statute that designates the fund as a

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used by state and local governments, earmarked for a specific purpose (other than business-like activities).

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Nonprofit and governments use the same four standard financial statements as profit-making organizations:

647: 207: 3147: 655: 533: 271: 137: 79: 2741:. Kansas Department of Administration (October 28, 1998). See "Proprietary Funds." Retrieved 2010-03-19 3137: 1769:

The Public Works Department spent $ 1 million on supplies and services for maintaining city streets.

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accounting, used by some small businesses, recognizes revenue when received and expenses when paid.)

826: 711: 583: 122: 2911:

Financial Statements of the United States Government for the Years Ended September 30, 2009 and 2008

2035: 762:– If the organization holds his non-current assets in a plant fund then this is used to account for 3239: 3203: 3152: 1498: 1174: 958: 775: 608: 573: 568: 543: 538: 478: 407: 365: 347: 300: 281: 212: 117: 42: 1886: 1826: 1771: 1693: 1627: 1511: 1452: 3229: 3219: 2539: 1355: 1169: 994: 987: 954:

is a government organisation which has been established as such by means of a trading fund order.

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U.S. Government Accountability Office. See "Statements of Net Cost," p. 39. Retrieved 2010-03-26

3234: 3167: 2763:. Government Accounting Standards Board, official news release. March 16, 2006. Archived from 2576: 2008: 945: 791:

or until a specific future date/event or has been used for the purpose for which it was given.

715: 593: 588: 167: 142: 3188: 3028: 1414: 867: 840:

Nonprofit organizations in the United States have prepared their financial statements using

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See "Characteristics of Fund Types," p. 37-38. Office of Management of the Budget (2009).

844:(FASB) guidance since 1993. The financial reporting standards are primarily contained in 2973:

accounting, requiring a more complex transaction than the simplified example shown here.

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Like profit-making organizations, nonprofits and governments will produce Consolidated

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funds; a trust fund generally exists for a longer period of time than an agency fund.

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Governmental funds, which are not concerned about profitability, usually rely on a

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funds used by state and local governments for business-like activities. The term,

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the organization is required, by agreement with the donor, to maintain intact in

2970: 2761:"Why governmental accounting and financial reporting is—and should be—different" 2366: 1069: 678: 670: 399: 2809:

See "Overview of fund types," p. 36. Office of Management of the Budget (2009).

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State and local governments report the results of their annual operations in a

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U.S. Government Accountability Office (December 1, 2006). Retrieved 2010-03-26

1409: 788: 682: 674: 666: 503: 187: 50: 2899:"Understanding Similarities and Differences Between Accual and Cash Deficits" 2549:

Government Accounting Standards Board (November 2007). Retrieved 2010-03-17.

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of the American National Red Cross for the fiscal year ended June 30, 2010.

3065: 2898: 2731: 2411: 2065:. University of California, Santa Barbara. 2004. p. IX. Archived from 1368:

funds. They are, otherwise, identical to public enterprise revolving funds.

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The United Kingdom government produces the financial statements called the

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are current assets subject to restrictions assigned by donors or grantors.

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that can be used at the discretion of the organization's governing board.

2166:"FASB's New Standard Aims to Improve Not-for-Profit Financial Reporting" 968:

is the government fund holding the UK's reserves of foreign currencies,

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Diagram demonstrating the difference between general and fund accounting

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See "Trust funds," p. 39-40. Office of Management of the Budget (2009).

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See "Deposit funds," p. 40. Office of Management of the Budget (2009).

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See "Federal Funds," p. 39. Office of Management of the Budget (2009).

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See "Revolving Fund," p. 8. Office of Management of the Budget (2009).

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Technically, there is just one general fund, under the control of the

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The American National Red Cross, June 30, 2010. Retrieved 2011-03-21.

2320:"What the New FASB Accounting Standards Will Mean for Your Nonprofit" 1438: 432: 107: 2540:"Touring the Financial Statements, Part III: The Governmental Funds" 1010:. They are produced using the annual basis and generated under the 2573:

Accounting for Governmental & Nonprofit Entities, 14th edition

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Federal government accounting uses two broad groups of funds: the

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Accounting for Governmental and Nonprofit Entities, Sixth edition

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funds are used to account for the construction or acquisition of

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State and local governments use three broad categories of funds:

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State of Maryland Comprehensive Annual Financial Report, FY 2013

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State of Maryland Comprehensive Annual Financial Report, FY 2009

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State of Maryland Comprehensive Annual Financial Report, FY 2009

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State of Maryland Comprehensive Annual Financial Report, FY 2009

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Example of financial statements prepared by a state government.

2236:"A Business Owner's Guide to Consolidated Financial Statements" 1558: 2601:

Governmental Accounting Standards Board Statement 34, para. 65

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UCSB Campus Information and Procedure Manual: Fund Accounting

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An accounting system used for special reporting requirements

2787:"What is the Comprehensive Annual Financial Report (CAFR)?" 3078:

For an example of nonprofit financial reporting, see the

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as a credit (surplus) or debit (deficit). Hay, p. 76-77.

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are reversed with credits. The difference is applied to

1346:. Its statutory designation distinguishes the fund as a 1364:

are business-like activities, designated by statute as

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The United Kingdom government has the following funds:

2110:"Investopedia: Cracking the Nonprofit Accounting Code" 2571:

Earl Wilson, Jacqueline Reck, Susan Kattelas (2006).

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Statement of Federal Financial Accounting Concepts 5

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