 starting with governmental fund and starting with the general fund, which is one out of five. This is the primary operating fund for a government entity. It covers the day-to-day activities and services. Simply put, here's what's going to happen. Government, the general fund is anything that's not special purpose, capital, debt or permanent. Anything that's not dose is the general fund, but usually what you're going to have in it is the day-to-day activities and services of the government. Now, how do they generate revenue? And don't worry, we're going to have a whole session about governmental fund. This is just an overview. Well, they get the revenue through general tax, which is basically taxing people, different various type of taxes, property sales, so on and so forth. And other unrestricted resources means somebody giving you the money. Example of the general fund expenses or expenditure include salaries for government employees, maintenance of public facilities, public safety services like police and file department. And here I used a general fund expenses, but when it comes to government, we're going to use the term expenditure and we're going to have a whole session explaining this concept. Now, I mentioned governmental funds use modified accrual. What does that mean? All what you need to know for now for modified accrual, which we'll define later. I know we're going to say we're going to define this later because you're going to see we have to expend on this. This is a course by itself, so we're going to have to build up your knowledge slowly. So every time I say modified accrual, and I'm going to repeat this on several slides, it means the fund don't keep track of long term assets. Don't keep track of long term liabilities. What does that mean exactly? Don't worry for now. We're going to look at actual examples later on. But this is all what it means for now, as far as the balance sheet is concerned. 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 going to 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. The second type of governmental fund is the special revenue funds, and we could have many of them here. It's where the funds are used specifically for a purpose, and that purpose is either legally restricted or committed. And that purpose is other than that service or capital project, because we're going to have special funds for those. An example will be a state gas tax. Basically, you're imposing when you fill out your car with gasoline, you pay a specific tax. That tax is specifically used for the transportation infrastructure or for maintaining the highway. Therefore, it will be put in a special revenue fund. An example will be a highway trust fund where it's funded by gasoline taxes and used to finance transportation project. Again, governmental fund, as I mentioned, they use modified accrual. The third type of governmental fund is capital project fund, which is fund. We are keeping track of our funds. Notice it's capital project fund, not keeping track of our assets. These funds are used to account for financial resources, money, not building. Remember, governmental funds use modified accrual. Therefore, when you think about capital project, you're thinking about buildings. You're not keeping track of the building itself because we don't keep track of our long-term assets because building is a long-term asset in governmental fund. We are keeping track of the money. Funds are used to account for financial resources that are designated for the acquisition, construction, or improvement of capital asset, building, roads, bridges, infrastructure project for the government. So the city might establish a capital project fund to finance the construction of a new public library or the renovation of the park. Again, modified accrual. It's a governmental fund, no long-term assets, no long-term debt. So hold on a second. How am I going to be doing this from an accounting perspective? Just hold on. We're going to have a whole separate session about capital project funds. The fourth type of governmental fund is debt service funds, and we could have many of those. Again, these funds are used to account for the accumulation of resources. Again, keeping track of the money for what purpose? For the payment of principal and interest. So we put money in this account for the sole purpose and keep track of it for paying our long-term debt such as bonds and loans when the government borrows money. For example, a school district might issue a bond, borrow money, to do what? To finance the construction of a new school building. Well, and use the debt service fund to repay the bondholders over time. So we'll have an account keeping track of that money that's going to pay back the bondholders and pay the interest. Once again, we use modified accrual. So how are we using modified accrual and keeping track of the bondholders that don't worry, we'll look at that later. The fifth governmental fund is a permanent fund. And as the word suggests, permanent fund is a fund that don't go away. Now, so how useful is it? Why are we keeping track of it? We don't care about the fund itself. We're gonna use its revenue. Permanent funds will generate investments revenue, like interest dividend. Permanent funds are type of funds used by government or other organization to account for resources that are restricted. So here's what happened. You have an individual that contribute a million dollar to the government says, I want this million dollar to maintain the park, but you cannot touch the million dollar. So how good is it? So here's what's gonna happen. You're gonna preserve the million dollar, you're gonna keep the million dollar, you're gonna invest the million dollar. And from the investment, you're gonna get interest, you're gonna get dividend, whether you invest in stocks or bonds, you can spend, you can spend the earnings to maintain the park, but not the million dollar. You cannot touch the million dollar. It's called a permanent fund. So the primary objective is to generate continuous source of income from this money to support the designated activity maintaining the parks or a program without depleting the original amount. So the original amount will be there for generation to come. What's gonna happen is the money generated from that ink from that principal amount from that original amount can be used. Another example will be an endowment. For example, a university, a wealthy individual might contribute money to university. University might receive a donation to create an endowment fund, which is a form of a permanent fund for scholarship. So how am I helping if I said, don't touch the amount? Well, don't touch the principal, invest the money and the earnings from the investment can be used to help students with their education, provide scholarship. Another one could be what's called a trust fund. Again, another wealthy individual may create a trust fund to support local museum or maintaining the park. So the principal amount is invested and only the investment income can be used. So be careful about the permanent fund. You can only use the interest or the revenue from that fund. You cannot use, you cannot touch the original principal amount. What type of accounting do we use for this? Modify the cruel, no long-term assets, no long-term debt. We'll look at those later.