In the context of government accounting, a general fund is the primary fund used by a government entity. It is used to account for all financial resources and transactions except those required to be accounted for in another fund.
The general fund typically includes most of the basic operating activities of a government entity such as police and fire departments, parks and recreation, public works, and general administration like the city manager or mayor’s office.
It is funded by general tax revenues, including property taxes, sales taxes, and income taxes. These revenues are not earmarked for a specific purpose and can be used for any legitimate government expenditure. The general fund pays for services like education, public safety, infrastructure maintenance, and public health services.
It’s worth noting that each governmental entity has its own unique set of operating funds and the exact usage and rules around a general fund may differ from one entity to another. The use of funds in government accounting helps ensure accountability and transparency in the use of public resources. It also helps ensure that money collected for a specific purpose is used for that purpose.
In non-governmental contexts, the term “general fund” might refer to the pool of money that can be used for any purpose by a nonprofit organization or other entity. It can include donations, unrestricted grants, and other types of flexible funding.
Example of a General Fund
Let’s consider an example of how a city might use a general fund.
The City of Townsville collects revenues from various sources, including property taxes, sales taxes, business license fees, and fines for parking violations. All of these revenues go into the city’s general fund because they are not designated for a specific purpose.
The city’s budget, which is approved by the city council, outlines how general fund money will be spent in the upcoming year. In the budget, the city allocates funds for different services and departments, such as:
- $5 million for the police department
- $3 million for the fire department
- $2 million for parks and recreation
- $1 million for the public works department, which handles infrastructure maintenance
- $500,000 for the city manager’s office and other administrative costs
Throughout the year, the city uses the money in the general fund to pay for these services. For example, the money allocated to the police department pays for salaries of police officers, equipment, training, and other related costs.
The city’s finance department regularly reports on the status of the general fund, including how much money has been received and spent. These reports help the city council and the public understand how the city’s money is being managed.
At the end of the year, any money left over in the general fund might be carried over to the next year, or it might be used for other purposes, such as paying down debt or funding capital projects, depending on the city’s policies and financial situation.
Remember, this is a simplified example. Actual governmental budgeting and accounting processes can be much more complex and involve many more funds and departments.