CPA Exam - FAR (Financial Accounting and Reporting)State and Local GovernmentsEasy
A local government operates a public library. The library receives significant contributions from a dedicated property tax levy, which by law, can only be used for library operations and maintenance. Which fund type would most appropriately account for these financial resources?
- ASpecial Revenue Fund
- BGeneral Fund
- CInternal Service Fund
- DEnterprise Fund
Show answer & explanationAnswer & explanation
Correct answer: A. Special Revenue Fund
Special Revenue Funds are used to account for specific revenue sources that are legally restricted or committed to finance particular functions or activities of the government, such as library operations from a dedicated tax levy.
Why the other options are wrong
- B. The General Fund accounts for general government operations without specific restrictions.
- C. Internal Service Funds provide services to other government departments on a cost-reimbursement basis.
- D. Enterprise Funds are used for services provided to the public on a user-charge basis, not dedicated tax levies.
Special Revenue Fund
A governmental fund type used to account for the proceeds of specific revenue sources that are legally restricted or committed to expenditure for specified purposes other than debt service or capital projects.
- Used for specific revenue sources
- Legally restricted or committed
- For specific operating purposes
Memory trick: Governments have Special Roads for Debt and Capital Projects.