The general fund is the primary operating fund of a governmental entity that is used to account for essential governmental functions. General fund revenues come from taxes, fees, grants and are not dedicated to specific programs. The general fund is used to pay for daily operations like supplies, salaries and other administrative costs. Governments classify revenues and expenditures by fund, program, organization, activity, object and character for budgeting and accounting purposes. Special funds are used for specific purposes while debt services funds are used for repayment of long-term debt. Encumbrance accounting reserves a portion of the budget for obligations or purchase orders that have yet to be paid.

1. General Fund
A general fund is a primary fund used by a government entity. General fund
refers to revenues accruing to the state from taxes, fees, interest earnings, and other
sources which can be used for the general operation of the Government. General
fund revenues are not specifically required in statute or in the constitution to support
particular programs or agencies.
The General Fund of the Government consists of assets and liabilities used to
finance the daily operations of the Government as a whole. It also includes accounts
used in the management of the budget of the Government.

2. It is the primary operating fund of a governmental unit. Much of the
usual activities of a municipality are supported by the general fund.
Examples are the purchase of supplies and meet operating expenditures.
This fund is used to record all resource inflows and outflows that are not
associated with special-purpose funds. The activities being paid for
through the general fund constitute the core administrative and
operational tasks of the government entity. Since the bulk of all resources
flows through the general fund, it is most critical to maintain control over
its expenditures from it.

3. Classification of govt. expenditures /appropriations
 Classification by fund: i. General Fund; iii. Special Revenue Fund; iii. Debt
Services Fund; iv. Capital Project Fund; v. Permanent Funds
 Classification by program: General government; public safety; highways and
streets; health and welfare; culture and welfare.
 Classification by organization unit: Police Dept.; Fire Dept.; Public works
Dept.; Personnel dept.

4.  Classification by activity: Solid waste collection- residential; Solid waste
collection-commercial; Solid waste disposal- landfill; Solid waste disposal-
incineration.
 Classification by character: Current expenditures; Capital outlays; Debt
services.
 Classification by object: Personal services; Supplies; Capital outlays; Debt
service.

5. Classification of Revenues
Source of revenue collection in Bangladesh
 NBR Revenue: The National Board of Revenue (NBR) is the top authority
for tax administration in Bangladesh. The principal job of NBR is to collect
tax revenues like Value Added Tax, Customs Duty, Excise Duty, and Income
Tax ).
 Non-NBR Revenue: Non-tax revenue refers to the revenue received by the
government administration, public enterprises, gifts, grants, etc. These sources
are different from taxes.
 Non-tax Revenue: Fees, Prices of public goods and services, Special
assessments, Fines and Penalties, Gifts, Grants, Donations, Special levies, and
Borrowings.
The total Revenues = (NBR+Non-NBR+Non-tax)

6. Tax Revenues
A tax is a compulsory financial charge or some other type of levy imposed on a
taxpayer by a governmental organization in order to fund government spending
and various public expenditures.
 Income taxes are imposed on the income earned by a person or firm.
 Property taxes are imposed on assets.
 Sales taxes are imposed on the value of goods sold. (Sales tax is collected by
the retailer when the final sale in the supply chain is reached.)
 Excise taxes are imposed on specific goods or services like fuel, tobacco, and
alcohol. (Excise taxes is a taxes placed on items made inside the borders of a
state).

7.  Customs duties is a taxes imposed on imports and exports of goods. (Customs duties
are imposed on goods imported from other countries or foreign territories).
 Value-Added-Tax (VAT), A value-added tax (VAT) is collected on a product at every
stage of its production during which value is added to it, from its initial production to
the point of sale. (VAT is collected and paid by all sellers and buyers in each stage of
the supply chain- Suppliers, manufacturers, distributors, retailers, and end
consumers)
 Supplementary duty: Imposable on luxurious goods, non-essential goods, socially
not encouraging goods, etc. Assessable value + import duty is the base value for the
imposition of SD.

8. Non-tax Revenue
 Fees: Fee is paid in return for certain specific services rendered by the
government. For example - education fees, registration fees, etc.
 Prices of public goods and services: A price is a payment made by the
citizens to the government for the goods and services sold to them. For
example - railway fares, postal charges, etc.
 Fines and Penalties: The government imposes fines and penalties on
people who violate the laws of the country. For example - fines for
violating traffic rules.

9. Gifts, Grants, and Donations: The government earns some income
in the form of gifts from the citizens and others, and also receives
grants from foreign governments and institutions for general and
specific purposes. However, this source of revenue is uncertain in
nature.

10. Special Assessments
Special assessments more typically are used for the extraordinary expense of a
project that benefits the community. For example, a town might levy a special
assessment tax to build a public recreation center or a park. (Investopedia)
(In the US) a special charge levied on property owners by a county or municipality to
help pay the costs of a civic improvement that increases the value of their property
A tax levied by a local government on private property to pay the cost of local public
improvements, such as sidewalk construction or sewage disposal, that are of general
benefit to the property taxed.

11. Special Levy
 Special Levy is a charge levied on those commodities, whose
consumption is harmful to human health.
 The objective behind charging a special levy is to discourage the
consumption of harmful commodities.
 Special levy is taken from consumers of particular commodities.
 Special levy is paid for using commodities like wine, opium, and
other intoxicants, etc.

12. Licenses and Permits as Govt. Revenues: Licensing revenue is income earned
by Govt. agencies for allowing it’s copyrighted or patented material to be used
by another entity. Licenses and permits may relate to the privilege of carrying
on business for a stipulated period, the right to do a certain thing that may affect
the public welfare, or the right to use certain public property.
 Trade license;
 Driving license;
 Vehicle license;
 Amusement Licenses;
 Occupational License etc.

13. Intergovernmental Revenue:
Intergovernmental Revenues are revenues received from other governmental sources
in the form of grants, shared revenues, and payments in lieu of taxes.
 Grants are contributions or gifts of cash or other assets from another governmental
unit to be used or expended for a specified purpose.
 Shared revenues are revenues levied by one government unit but shared on a
predetermined basis among other units of government. For example, provinces or
states may share revenue with local governments, or national governments may
share revenue with provinces or states.
 A payment in lieu of taxes is a payment made to compensate a government for
some or all of the property tax revenue lost due to tax-exempt ownership or use of
the real property.

14. Revenue and Estimated revenue
Government Revenues refer to all receipts the government gets, including taxes,
customs duties, revenue from state-owned enterprises, capital revenues, and foreign
aid. Government Revenues are part of the government budget balance calculation.
Estimated revenue means the amount of revenue estimated to be received from all
sources during the budget year in each fund for which a budget is being prepared. This
calculation can be important for a number of financial activities including estimating
taxes due, budgeting, and issuing statements to shareholders and interested members of
the public. There are a number of approaches to developing estimates.

16. One way to look at estimated revenue is to consider the earnings likely to accrue,
even if they are not actively collected. This is used in accrual-basis accounting
techniques.
Sources for information in a revenue estimate can include data from prior
financial periods, analysis of the market, and projections based on current
activities.
Overestimating can create problems because a budget might be too large, or the
image created from the estimated revenue might be too rosy and could be
considered misleading. Failing to account for potential revenue sources, on the
other hand, might result in an abnormally low estimate, which is not helpful either.

17. Expenditure
Government expenditure includes the purchase of goods and services,
subsidies, grants paid, interest, social benefits, and compensation of
employees. The purchase of goods and services includes public
consumption and public investment, and transfer payments consisting of
income transfers (pensions, social benefits) and capital transfers.
Government acquisition of goods and services intended to create future
benefits, such as infrastructure investment or research spending, is
classed as government investment (government gross capital formation).

18. Appropriation
Appropriation is the act of setting aside money for a specific purpose
(Official allocation of budget). Appropriation accounts show how
governments distribute their funds. Governments appropriate funds in
order to delegate cash for the necessities of business operations.
Government appropriation accounts come into play when they create
their budgets. Appropriation credits are taken out of estimated revenues
from taxes and trade and allocated to the proper agencies.

19. Recording The Budget
A. On the first day of the Fiscal Year the total estimated revenue should be recorded
in the general fund general ledger control account along with each revenue source in
the budget in the subsidiary ledger account.
General Ledger Subsidiary ledger
Debit Credit Debit Credit
1. Estimated Revenue ###
Budgetary Fund Balance ###
2. Estimated Revenue ledger:
Tax ###
Licenses and permits ###

20. B. Total appropriation and other uses for the general fund should also be recorded in
general ledger control accounts, and the amounts appropriated for each function
itemized in the budget should be recorded in subsidiary ledger accounts:
General Ledger Subsidiary ledger
Debit Credit Debit Credit
Budgetary Fund Balance ####
Appropriation
Estimated Other Financing Uses
####
####
Appropriation Ledger:
General Govt. ####
Public Safety ####
Education ####
Estimated Other Financing Uses Ledger:
Interfund Transfer ####

21. C. To recognize revenues and to establish accountability revenue collection should be
recorded in the general ledger as well as sources of revenue collection should be
recorded in the subsidiary ledger of the general fund.
General Ledger Subsidiary ledger
Debit Credit Debit Credit
Cash ####
Revenues ####
Revenues Ledger:
Licenses and Permits ####
Customs and excise
Intergovernmental Revenues
####
####

22. Encumbrances
The management of government units can legally only spend amounts budgeted for.
Encumbrance accounting is also referred to as commitment accounting, which involves
setting aside money ahead of time to meet anticipated expenses. The amount is set
aside by recording a reserve for encumbrance account in the general ledger. This is to
ensure that the organization has sufficient funds to meet anticipated payment
obligations. Encumbrance accounting is often used as a planning tool for budgetary
control.
Appropriations (Budgeted expenditure) Tk. ------
Less: Encumbrance Tk. ------
Less: Expenditures Tk. ------
Equals: Unexpended, Unencumbered, Appropriations Tk. ------
Encumbrances can therefore be defined as the estimated value of goods or services for
which purchase orders, contracts, or other commitments have been signed, but that
have not yet been received.

23. Steps in Encumbrance Accounting Process
Step 1: Pre-encumbrance (Commitment) The procurement process begins
with the intent to purchase goods or services. This intent implies that the
business is highly likely to spend money in the future, which implies a
commitment to make a purchase. However, at this stage, there is no legal
obligation to make a payment. An example of a pre-encumbrance transaction
is a purchase requisition.
When goods/services are ordered, their estimated cost is recorded:
Description Debit Credit
Encumbrances ###
Budgetary fund
balance assigned for
encumbrances
###

24. Step 2: Encumbrance (Obligation) Once the vendor approves the transaction,
the commitment converts into a legal obligation. The procuring organization
becomes liable to make a payment in the future. An example of an encumbrance
transaction is the approval of the purchase order.
When these goods/services are then delivered, two entries are processed:
First, the encumbrance is reversed for the amount it was recorded for in the first
entry:
Description Debit Credit
Budgetary fund balance assigned for encumbrances ###
Encumbrances ###

25. Then the purchase is recorded in the normal way:
Description Debit Credit
Expenditure ###
Vouchers Payable ###

26. Step 3: Expenditure (Realization) In the final stage, the actual transaction
occurs. That is, the supplier delivers the goods or services. Then, the procuring
company converts the encumbrance into expenditure by transferring the transacted
items from the encumbrance account into the account payable.
At year-end, the balances in the encumbrances and budgetary fund balance
assigned for encumbrances accounts are closed as part of closing the budgetary
accounts:
Description Debit Credit
Budgetary fund balance assigned for encumbrances ###
Encumbrances ###

27. Usually, the government unit will also reserve a part of its funds for outstanding
purchase orders that will be fulfilled in the next financial year. This is done by
transferring an amount from the unassigned fund balance to the committed or assigned
fund balance, like this:
Description Debit Credit
Unassigned Fund Balance ###
Fund Balance--Assigned for Encumbrances ###

28. On the first day of the new year, the closing entry for encumbrances is
reversed, meaning the encumbrances are reinstated and purchases in the next
year can be processed as discussed before. The entry to reserve funds is also
sometimes reversed but can be left as is as well. In the next year-end, the
amount can then be updated, only to the new balance of unfulfilled purchase
orders.
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