 Hello and welcome to this session. This is Professor Farhad in which we would look at a CPA simulation or simply put an exercise from a governmental accounting course in which we need to classify where each transaction goes in terms of the appropriate fund. So this topic is covered in governmental accounting as well as the CPA exam FAR. What I do on farhadlectures.com is help students, whether you are taking governmental accounting or if you are studying for your CPA exam, I can help you. Now you might be saying I don't need you to help me for my CPA exam. I do have my Becker, my Roger, my Wiley, my Glyme or my Saunchant. I am covered. Well, I provide different type of services. I don't replace those courses. What I do is I help make the material easier, more comprehensible for you so you can take advantage of the thousands of dollars that you invested in your CPA course for the fraction amount of money. So simply put I cover the material from scratch. I don't assume you know anything. The CPA courses, they assume you have a basic level of knowledge. I don't. The reason is simple. Maybe you took governmental accounting and maybe not. If you never took governmental accounting, you're going to find hard time on the CPA exam. If you took governmental accounting, most likely you took it during your senior year. You didn't really care. Or if you really cared, the teacher did not really thought it well. And if they thought it well, you forgot about it. So that's why you can go to my website, farhatlectures.com, to compensate for that. Now, also, I would also like to remind you to connect with me on LinkedIn. If you haven't done so, please subscribe to my YouTube, where I have plenty of accounting lectures. But on my website, farhatlectures.com, this is where you find the additional resources. Everything is organized by course, chapter, multiple choice, exercises, true, false. Also, if you are studying for your CPA exam, I strongly suggest you visit the site. At least you want to know how well your university is performing on the CPA exam. If not for anything else, make sure you check out my website. Let's go ahead and start to take a look at each of these transactions, A through K, obviously each situation is independent. And on the CPA exam, you might have a drop down menu to kind of classify, not classify match, the statement with the appropriate fund. So the first one is construction of public building. So when we do construction for public building, in which fund do we keep the financial resources? Well, you have many funds. You have the general fund, you have the special revenue, debt service, capital, permanent, internal service, enterprise fund. Well, you need to know that construction of a public building, once you're about construction, think about capital project, capital asset. This is where we keep the financial resources to be used for either acquisition or construction of major facilities. So simply put, because it's for public, for public building, it's a capital project fund. So we keep the money, the financial resources and that capital project fund, and it's very important. I'm going to write it down. We account for the financial resources, not the asset itself. Remember, in the governmental fund, we don't keep long term assets. We keep track of the financial resources. B, cost of a central purchasing and warehouse function. So we have some sort of a central purchasing department and a warehouse function where we keep whatever we need for our operation, our snow cleaning vehicles, police department, whatever we keep in the warehouse. And we have a central purchasing. Whatever we need to buy, as a government entity, we need to go to that central purchasing. Well, what type of fund is that? Where do we account for this type of transaction? Well, think about it. You have one government entity serving another government entity. That's what it is. That's called internal service fund. So the funds here are used to report activities that provides goods and services to other funds. So you'll be using the purchasing, the central purchasing, the warehousing for your own use. So simply put, another government agency helping you to reach your goal, which is what? Purchasing and warehousing. The internal service fund. See, gifts in which the principal must be invested and preserved. So you cannot touch the principal. While the investment earning must be used to provide scholarship to children of police officers who died in the line of duty. Now, what's going to happen is this. Here, it's a little bit tricky because it's a gift. You might be thinking, OK, it's a gift. How do we treat with this gift? And the gift is you have to maintain the principal. Well, once you said maintaining the principal, you might be thinking it's a permanent fund because we have to maintain the principal and spend the interest. You are right so far until you get to earning must be must be used to provide scholarship to children of police officers who died in the line of duty. Now, what we are looking at, we are looking to spend the interest not on anything we want to on a specific purpose. Therefore, it becomes a private purpose trust. So this is a private purpose trust. OK, so that's why we have to be very careful here. OK, administrative expenses of the city's manager's office. It's administrative expenses. Basically, where do we put it? Really, expenses that don't fit anywhere, they go into the general fund. So what do we have in the general fund? What's the definition in the general fund? Well, the general fund simply put an account for all financial resources not reported in any other fund. So to know what goes into the general fund, you need to know what goes into the other funds. If it goes into the other fund, like the capital project, it's an internal service or private purpose. If it's none of those, if it's not that service, if it's not permanent, it's not special revenue, then it's the general fund. And every government should have a general fund. You need to have a general fund. Now, we have assets held for external government participant in the government's investment pool for the purpose of earning investment income. So some other assets. We have assets from another government, and we have this asset combined with our investment pool. That's investment trust. We keep that money in the investment trust fund. Gifts. Notice we're going to compare C to F, which the principal must be invested and preserved. Same thing. But the investment earning can be used for public purposes. We're not specifying. Here, we're saying you could use it for whatever you want to, the interest or the dividend from that fund, but not the original principal. Here, what we're looking at is a permanent fund. It means the principal we're going to keep. We don't touch. We don't spend. Only we spend the interest, the dividend, that's coming from that. G, cost of operating a municipal swimming pool. Now, we have a pool. Think about it. And this is cost to operate. It means if we have cost, it means somehow we have to generate revenue from this swimming pool. We charge fees. Basically, we charge fees. We're running this like a business. In those circumstances, the fund used to report activities where we charge a fee for goods and services. Guess what? It's called the enterprise fund. Or if you want to think of it as, I'm going to put it in quote, a business fund. And the reason why I want you to think of the business fund is because the type of accounting we used. In those type of accounting, we use the accrual basis of accounting, which is the same thing as the internal service fund. We use the accrual. Accrual. I should not add a lot of terms to you because I'm not sure how much you know this. But if you need to know about in which fund we use accrual and in which fund we use modified, go to forhatlectures.com and I explain this in details. Basically, in all the other funds, not the all the other, but I don't want to confuse you, but I just want to tell you in which we use the accrual. Taxes collected on behalf of another governmental unit. So guess what? We're collecting taxes. It's like we're the city. We're collecting taxes for a municipality or to another city or to another or for the state. All we're doing is we're holding the money on their behalf. That's all we're doing. We're holding the money on their behalf. It's not our money. It's the custodial custodial fund. Asset held in a trust that provides retirement benefit for municipal worker. Hopefully, this will be easy. It's the pension trust. Basically, we're going to give that money later on to police officers, firefighters, city employees. Once they retire, we help them, you know, not we help them. They get their payments and we have to keep that money separately in a pension or employee benefit trust. Principle and interest payment on the general long term debt. Well, here what's happening here. We are maintaining a fund where we are paying our debt off. You're paying the principal and the interest. Here, what we have is a debt service fund, debt service fund. So this is kind of, where does it get a little bit confusing? It's like, what's the difference between capital project and debt service fund? When we borrow the money, first it goes into the debt service fund, then it gets transferred to the capital project fund. Then it's used in the capital project fund, but the interest is paid from the debt service fund. So this is that service fund. Here, we use a modified approval. Grant revenue. Somebody gave us revenue. Restricted. Here, we go restricted. For a particular operating purpose. So they gave us the money, but they didn't say you can do anything you want with it. They gave us the money and it's restricted for a purpose. Well, under those circumstances, for example, the state gave us the money to buy a new computer system for our city. It's restricted. What is it restricted for? Buy a new computer system. Well, in these funds, we account for legally restricted revenue other than those restricted for capital project or debt service. Under those circumstances, we have special revenue funds. So the revenue is for a particular purpose. Therefore, it's the special revenue fund. So you want to make sure you are comfortable with this. I mean, basically, I did not explain. There's a lot to explain here, which accounting method they used, which financial resources. Do they use the financial resource focus or do they use economic resource focus? Do they use budgets? Do they use incomparances, so on and so forth? There's a lot to know. All what I did now is just make sure you know in which fund does it go. But on my farhatlectures.com, which is if you go to my website, click in here and you'll have the governmental course. It will appear or if you're studying for your CPA exam, you click on CPA, you'll go to FAR and you will find additional detailed explanation about everything that we went over today in this typical or quasi, I wouldn't say quasi. You might see something like this on the CPA exam in the form of a CPA simulation. As always, I'm going to remind you to visit my website, farhatlectures.com, check out my resources. Your investment in your CPA is at 20, I would say 30, the 40 year investment. Take it seriously, invest in your career, invest in yourself. It's going to pay dividend for decades. And don't forget to like and share this recording. Good luck, study hard and stay safe.