Lesson: Custodial Fund

In this lesson, Nick Palazzolo, CPA, breaks down the intricacies of the custodial fund and its role within governmental accounting. He clarifies that custodial funds are used to hold money that is collected on behalf of, and will be dispersed to, other entities – for example, when a county collects taxes to pass on to the state. Nick illustrates how these funds act as a financial steward, managing resources through various governmental layers until they reach the intended beneficiaries. He also discusses the nuances in recognizing revenues and expenses for these funds, pointing out the unique nature of these transactions as they are not typical revenues or expenses, but rather inflows and outflows of fiduciary activities.