Video: Governmental Fund Structure

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In this lesson, delve into the foundational elements of governmental fund structure with Nick Palazzolo, CPA, who turns the complexity of fund accounting into an accessible and engaging narrative. By comparing funds to various types of personal checking accounts, Nick demystifies each fund's unique purpose within a governmental context—from the general fund, akin to where a paycheck might be deposited, to the custodial fund, which resembles holding money for someone else. Emphasizing the practicality of memorization, he encourages getting intimate with the chart that categorizes the five governmental funds, two proprietary funds, and four fiduciary funds. Nick assures that this knowledge is not just theoretical, but a key to unlocking "free points" on the exam and building a solid foundation for understanding the nuances of public sector financial management.

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Video Transcript

Instructor:Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

Cite this lesson

All right. First off, this is our big kahuna, our magic chart, our secret to success as a governmental entity. Think of your local town. We have three types of funds. And what are funds?

I'm just going to address that first. Think of them like checking accounts. Imagine you personally have many, many checking accounts and all eleven of these checking accounts serve a different purpose. For example, and this is super high level. So don't worry about understanding everything here right away.

This general fund is where let's say you are going to get your paychecks deposited. Similarly for governments, this is where they collect their property tax revenue. They make their primary revenue. Now let's say you have an investment account and you want to fund your investments similarly to you. The government would then transfer funds from this “checking account” from the general fund to the enterprise fund for its business related activities.

Now let's say you want to save that money for someone else. Let's say your brother gives you $1,000, says he needs this in a week. Why did he do that? I don't know. Maybe he is changing his bank accounts and won't have an intermediary one. So then maybe you would take some funds and store them in the custodial fund. He would transfer your funds to you and they would sit in the custodial fund. You are acting as the custodian of his finances, his money. Just many different examples here of different funds.

Not to get into them too much. We have plenty of time for that. One note I would say right off the bat is do it for me, do it for yourself, do it for whoever you're taking this test for. Memorize this chart completely in its entirety.

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State and Local Government Concepts

Module: 2 Concepts, 21 Videos

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