One area of fund accounting in the public sector is the government fund. This fund accumulates all government income from taxes and other sources. The pool of funds is used to meet government expenditures. To begin, let's define, explain, and state the importance of these funds.
1. What's government fund
These are funds from taxes and other government revenue used to service the budget of a country or state. In a federal system of government, a government fund can be the federal government funds, state funds, or local government funds. Each of these tier of governments pool their revenue together to meet the annual budget.
Therefore, the fund is pooled from taxes and other government revenue. In Nigeria, there are certain taxes that accrue to each tiers of government. For example, vat is collected by the federal government, personal income tax by states and road taxes by local government. The FG earns most of its revenue from crude oil export. But the revenue earned from crude oil is pooled into the consolidated revenue fund which is one type of government fund under discussion.
The fund serves the purpose of the government. This includes the protection of life and property, building and maintaining social amenities, meeting government revenue expenditures such as the pay salaries of civil and public servants, among other things. Government fund is the source of financing its annual budget, servicing of debts, refinancing working capital of parastatals, and meeting special needs such as poverty alleviation.
2. Types of government funds
These are:
- Consolidated fund
- Special fund
- Revolving fund
- Debt service fund
3. Importance of government fund
In fund accounting, here are the benefits of having a government fund by each tier of government.
3.1 Accountability
Having a separate government fund account will ensure not just accountability but also transparency. Through budgeting citizens can monitor these funds and know if it was used properly.
3.2 Servicing debts
Funding from this pool is used to pay off local and foreign debts. For example, the budget explains the funds to meet government revenue and capital expenditure. It also shows how the debts will be serviced.
3.3 Meet special needs
Another benefit of the government fund is that it can be used to finance special needs. Such as poverty alleviation, low interest loans to small businesses, and subsidies.
3.4 Fund working capital
The revenue expenditure in the budget serves as the working capital for government parastatals. Therefore, we can say that this pooled fund is used to meet government expenditure.
4. Conclusion
Finally, the government funds are sourced from taxes and other government revenue and it's used to meet capital and revenue expenditure. More so, one importance of these funds is its ability to finance special needs of the government.
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