 Now let's move to the third categories, which are the fiduciary funds. And here we're gonna have four of them. The first one is the custodial funds, also known as agency funds or fiduciary funds. But the technical word I like the word agency, because as an agency you are an agent. And an agent represents someone else. Those are fund held by an organization or a government as a custodian or trustee on behalf of another entity or another individual. I'll give you an example of this. So in this arrangement, the organization has the responsibility to manage, invest, and disperse the funds according to the terms of the agreement, legal requirement, or designated purpose. But the funds do not belong to the organization itself. For example, you could have a county, okay? For example, in the US we have local government, we would have a county government, we would have a state government. And the reason I am local is the smallest county is a little bit larger in the state. For example, the county could collect state taxes. Well, hold on a second. State taxes belongs to the state. Why is the county collecting them? Well, the county is collecting them for the sole purpose of transferring this money to the state, just helping the state out. So what they do when they collect this money, they put it in an agency fund, because it's not their money, their agent. They're basically representing the state. That could be an example of it. Or domestic relationship payment on behalf of the state. For example, when you have a dispute between a husband and a wife, they sue each other. And I work in this department domestic relationship in one of the counties in Pennsylvania. And what happened is this. The state maintained the program, but the county collects the money. So the county collects the money, then they send the money to the state or they disperse the money in between the different spouses. But it's not really the county has nothing to do, except they are a middle person, a person in the middle holding the money for another party. And this is what we buy custodial or agency funds. Here we use a cruel accounting. Before we proceed any further, I have a public announcement about my company, farhatlectures.com. Farhat accounting lectures is a supplemental educational tool. That's gonna help you with your CPA exam preparation, as well as your accounting courses. My CPA material is aligned with your CPA review course, such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses, broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead, start your free trial today. Another furitiary fund is Private Purpose Trust Fund. It's private purpose. The keyword here is private. This is used by the government to account for resources held in a trust for the benefit of specific individual, private organization, or other entities, rather than the general public. So let's assume you're a wealthy individual and you want to give money to help a specific organization or specific group of people. Well, you can set up your own trust or you can give this money to the government and tell them, look, you maintain this for me. So it's called the Private Purpose Trust Fund. In this arrangement, the government is working as a trustee. So rather than having a lawyer or having your own entity, you'd say, I want the government to maintain this for me. Okay, the government is working as a trustee. They manage, invest, and this burst the funds according to the terms, whatever you told them or the legal agreement. So those funds, because they are private purpose trust funds, they are not owned by the government because it's a wealthy individual. The reason I say wealthy, because usually wealthy people set up those private trust fund and they are separate funds from any other government fund. So that's why we have to keep track of them separately in a fund called Private Purpose Trust. So this money is used specifically for a purpose. What could be that purpose? Could be an example, scholarship funds. For example, the government now is a trustee is responsible for managing and investing the funds, selecting scholarship recipient according to the criteria established by this wealthy donor and dispersing the scholarship fund to the recipient. So rather than giving this money to the government, you could create your own organization and have people take care of this or you could say, I want the government to do so. When you give this money to the government, the government will have to keep it in a separate fund. And what's that fund called? Private Purpose Trust Fund. What's the purpose? Scholarship funds. Or you wanna create a fund where they maintain the cemeteries for specific individuals, for all the people with your last name. That's a special purpose trust fund. So how do you know it's a special purpose? It's for a specific purpose and that purpose is not the general public. You are specifying who you want to benefit from this money. That's how you know it's a special private purpose trust fund. Again, you would use the cruel accounting. Another fiduciary fund is the pension trust funds. And from the name pension trust fund, what are we maintaining the pension? What is the pension? It's the retirement plans. Type of fiduciary fund used by government to manage resources dedicated. Notice all you are managing the resources of providing retirement benefit to their employees. So it's basically you're putting money away in a special fund called the pension trust fund to do what? To finance the retirement of your employees. So these funds are held in a trust with government or organization acting as a trustee, managing, investing and dispersing the funds according to the terms of the pension plan and the regular requirement. Now also pension trust fund are not owned by the government because once you put that money in the pension, it belongs to the pensioneers. Who are the pensioneers? The employees, the future retirees of the government. Or organization and are segregated from other operating fund. That's why you have them in a separate fund. That's why these are called funds. Hey, for example, public employee retirement system. For example, I am part of the public employee retirement system in Pennsylvania. Many government have established a pension trust funds for their employees such as PERS or the teacher retirement system. That's fine. These pensions funds are designated to provide me when I retire benefit as an employee to government employees such as teachers, police officers and firefighters. The fourth type of fiduciary fund is the investment trust fund. Well, this fund is sometimes referred to as investment polls or polled investment fund. So what would happen is this? These type of fiduciary funds are used to consolidate and manage the investment from multiple funds or participating entities. So you might have a city, okay? And in that city, you might have many boroughs, okay? One, two, three, four, five different boroughs. And each borough is an independent entity. What they can do, they can pull all their money together for investment purposes, they can pull all their money. So each one, for example, this borough in the city, they have a million dollar. This one has three million. This one has six million, so on and so forth. Extra money that they can invest. So rather than each borough investing the money, it doesn't have to be borrowed. It could be two or three cities or two or three counties, multiple government. And what they do is they create one trust fund and they invest all their money together. Why would they do that? Why would they do that? Is to achieve economies of scale. What does that mean? When you have a lot of money and you're given it to a professional organization, a finance professional organization and you're given them, for example, if you're investing a million dollar, it's different than investing 100 million. If you're investing 100 million, they're gonna treat you differently. They're gonna lower your transaction cost. They're gonna give you more advice. They're gonna take care of you. Why? Because you are investing a larger amount. So what they do, they pull all this money together and they invest it together. Why? To gain economies of scale. To lower their, to save money, simply put, to save money and have a better service. So state or local government, that's what they do. They pull their money together. So many state and local government in the US operates investment pool, which allows various government entities, such as even school district, many municipalities within the same city, special district to pull their idle cash for investment purposes. For example here, a state treasurer office may establish an investment pool to manage short-term investments of funds from multiple government agencies. You're gonna say, okay, how are we gonna keep track of this? Well, you're gonna allocate the earnings from this fund based on your proportionate share of the pool. So if you have a hundred million dollars and your county contributed 15 million from that pool, if you can, and we made $10,000 of revenue, well, you're gonna get 1,500 of income, which is 15 million is 15% of the 100 million. Well, you're gonna get this amount because proportionally you own 15% of the fund. So this is how they distribute the fund. Now from a CPA or an accounting perspective, what do you need to know about this? You need to answer multiple choice questions, such as this one about the various funds. So which of the following is not a characteristic of a private purpose trust fund? Now, you have the options A, B, C, D. The first thing I want you to be aware of is, is not. So be careful about these questions. Is not a private purpose trust fund. Where am I honing on the word private? It's not, so you have to be careful. A government acts as a trustee managing and dispersing the funds on behalf of a specific individual organization or entities. Well, yeah, this could be, this is a private purpose trust fund. The government is acting as a trustee, but that's not the answer. It's a correct answer, but that's not what I'm looking for. If it says which of the following is a characteristic, that will be A. But A is not the correct answer because that's not the correct answer. Let's move to D. The government is responsible for managing, investing and dispersing the funds according to the terms of the trust agreement or legal requirement. Very similar to A, very similar to A. It is a characteristic, so out. Okay, let's look at C. The funds are not owned by the government and are segregated from other funds. Well, money from a private purpose trust fund or private purpose. The government doesn't own the money, so they are not owned by the government. Yeah, that's correct. And are segregated. They're supposed to be segregated. They're private. Well, that's also a correct statement about the private trust fund. Funds are held in a trust for the benefit of the general public. No, no, that's incorrect. That's not a characteristic of a private purpose trust fund. Why? Because one definition of a private purpose trust fund is it doesn't benefit the general public by its definition. Therefore, B is not a characteristic of this private purpose trust fund. What should you do? Go to Farhad Lectures to look at additional MCQs. It's similar to this one that's gonna help you understand these concepts better. Invest in yourself. Don't shortchange yourself, whether you are studying for your CPA exam, you're an accounting student or some other professional organization. Invest in your career. Good luck, study hard and stay safe.