Lesson: Governmental Revenues and Expenditures - Permanent Fund

Instructor: Nick Palazzolo

In this lesson, explore the intricacies of the Permanent Fund within the realm of governmental accounting. Nick Palazzolo, CPA, breaks down the concept using a relatable example of a generous community member who donates a significant amount of money with specific spending conditions. Dive into the legal restrictions of the fund, understanding that only earnings, not the principal, are expendable. Nick also contrasts Permanent Funds with Special Revenue Funds, clarifying how each is earmarked and the stipulations tied to their use. Uncover why Permanent Funds and Debt Service Funds differ by not recording encumbrances and learn about appropriate expenditures, including costs to maintain projects like a baseball field mentioned in the example – all tailored to paint a vivid picture of how these funds operate for a clear grasp on the topic.

Updated: Oct. 20, 2021 Create an account

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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.

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All right. Lastly a little bit on the Permanent Fund. It's almost as if we spent the whole time on our Debt Service and Capital Projects fund. All right. Well, revenue sources for the Permanent fund. Remember, this is the best example. Let's say you are a super wealthy, super successful member of your community. You come back and say here's a million dollars you can't do anything with the principal, but the government can spend any interest made on it and generally you're going to tell them what they can do with it. Like build a baseball field. We use the Permanent Fund to record a pool of resources in the hands of the government that are legally restricted. The restriction here is that only earnings and not the principal can be spent. Permanent Funds are essentially non expendable trusts and may be used for endowments governed by a formal trust agreement. So all this is saying is basically this is like we're backing a not for profit again, right? It's like we're backing a not for profit. And this is a big contribution that you can only use earnings on and that would be revenues for the Permanent Fund. Now, what about expenditures for the Permanent Fund? Expenditures for the Permanent Fund are those costs incurred in operating for its purpose? Wouldn't you know it? I mentioned the baseball field. So baseball field maintenance costs. There are two governmental funds that do not record encumbrances and the rest do. The two that do not are the Debt Service and the Permanent Fund because with these there's nothing to commit, there's nothing to encumber, there's nothing to reserve, so nothing is done there. And lastly, here's a comparison between the Special Revenue Fund and the Permanent Fund. Just another

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Governmental Accounting: Part 1

Module: 3 Concepts, 29 Lessons

Governmental Assets, Liabilities, Revenues & Expenses Overview and Objectives

1:32

Governmental Fund Structure

1:12

Governmental Revenues - General Fund

1:31

Governmental Expenditures - General Fund