A city operates a water utility, a motor pool, an employee pension plan, a courthouse construction project, and a downtown revitalization grant funded by a state appropriation. The accountant must place each activity in the correct fund, and getting it wrong distorts the financial statements at both the fund and government-wide levels. The exam asks this question constantly: given an activity description, pick the fund.
GASB defines exactly 11 fund types. Every government activity must fit into one of them. Choosing correctly drives the basis of accounting, the required statements, and whether the activity even appears in the government-wide statements at all. This lesson teaches the decision rule for each fund type.
GASB groups the 11 funds into three categories based on the nature of the activity and who owns the resources.
KEY: Governmental funds account for tax-supported services to citizens. Proprietary funds account for business-type activities that charge fees. Fiduciary funds hold resources the government does not own and cannot use for its own programs.
Common mistakes
- Confusing Special Revenue with Capital Projects. A $3M federal grant restricted to constructing a single new community center building goes in Capital Projects, not Special Revenue. The capital-construction nature controls regardless of how restricted the revenue source is. Trap answer: candidates pick Special Revenue because they latch onto the restriction language.
- Putting employee pension activity without a trust in a Pension Trust Fund. Pension Trust Funds require an actual trust arrangement with assets legally protected from the employer's creditors. A defined contribution plan or Section 457 plan held without trust protection is a liability of the employer government in the General Fund, not a Pension Trust.
- Treating an external investment pool as a single fund. A county runs a pool with $80M of its own resources and $120M from outside participants. Only the $120M external portion goes in an Investment Trust Fund. The $80M stays in the county's own funds.
Bottom line
- 11 fund types in 3 categories: 5 governmental + 2 proprietary + 4 fiduciary
- Governmental funds (General, Special Revenue, Capital Projects, Debt Service, Permanent) account for tax-supported services
- Proprietary funds (Enterprise, Internal Service) account for fee-charging activities; Enterprise serves outsiders, Internal Service serves other departments
- Fiduciary funds (Pension, Investment Trust, Private-Purpose Trust, Custodial) hold resources the government does not own
Exam shortcut
When the question gives an activity description, walk the decision tree in order: fiduciary first (held for others?), then proprietary (charges fees?), then governmental (which sub-type?). The trap is reading restricted-revenue language and jumping straight to Special Revenue without checking whether the activity is capital construction (Capital Projects) or debt service (Debt Service). For Enterprise vs.
The full lesson (about 3,998 words, 27 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- I.C2
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