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What Is General Fund?
General Fund refers to the total revenue collected by the government in the form of taxes, interest, and other income sources. This amount is used to finance the government's activities towards debt repayment, social welfare programs, developmental projects, and public expenditures such as salaries and operating costs.
General fund revenues and expenditures form a significant portion of the budget allocated toward general administration and governmental services in the same fiscal year. In the United States, the fund is referred to as America's checkbook precisely due to its allocation to different entities.
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- The general fund meaning defines it as the cash inflows that the government receives to finance its spending activities.
- This fund consists of five components specified by the Department of Treasury, including appropriation authority by Congress, cash collection and disbursement, expenditures, revenues, and other assets and liabilities.
- The revenue collected through taxes, interest from creditors, and other services is primarily allocated to expenditures such as refunds, healthcare, education, and interest on borrowings within the same fiscal year.
- The fund is managed at the central, state, and local government levels, encompassing all federal agencies.
General Fund Explained
General fund revenues serve as critical components within a government budget, adhering to a straightforward principle: collect funds from individuals and entities and allocate them to various services. Key revenue sources encompass income tax, sales tax, property tax, interest, licenses, permits, and service charges.
Expenditures cover essential areas such as public education, healthcare, personal and administrative services, interest payments on debt, and funding for developmental projects, including highways and disaster relief efforts.
The general fund balance sheet consolidates the government's assets and liabilities. Management of the fund is a collaborative effort involving central, state, and local governments. While state and local governments possess their revenue sources, the central government also distributes funds to the states. Each state maintains an online system for transparent reporting of revenue collected and expenditures.
The Department of Treasury plays a pivotal role in the general fund by delineating its five crucial components:
- Authority: Congress grants budget authority to federal agencies, enabling them to incur financial obligations; this is termed appropriation.
- Cash: Government agencies collect cash from the public, recording it as receivable Due from Treasury when transactions occur.
- Borrowings: The fund notes borrowings are issued to federal agencies as loans receivable.
- Debt Issued: Debt issued to federal agencies and the public is recorded as Due to Treasury.
- Other Assets and Liabilities: This category encompasses transactions related to government-sponsored enterprises, refunds payable, and more, providing a comprehensive overview of the fund's financial intricacies and ensuring transparency in fiscal operations.
Examples
Consider the following cases to understand the concept better.
Example #1
Let's examine a straightforward hypothetical example of State A's financial scenario.
Inflows: $20,000,000
Outflows: $18,000,000
Revenue Sources:
- Taxes: $12,000,000
- Grants: $5,000,000
- Licensing Fees: $3,000,000
Expenditures:
- Education: $8,000,000
- Healthcare: $4,000,000
- Infrastructure Development: $3,000,000
- Debt Repayment: $2,000,000
- Administrative Costs: $1,000,000
This example illustrates a general fund with diverse revenue streams supporting various essential services and projects. The outflows are strategically allocated to prioritize education, healthcare, infrastructure development, debt management, and administrative functions, maintaining a balanced financial approach.
Example #2
Commissioners of Ashtabula County Board in Ohio approved the fund budget for 2023. The combined budget is $29.5 million. It includes $7.47 million from the American Rescue Plan Act (ARPA). Out of the funds, the County Sheriff's Office received the largest share of $9.58 million. Of this, $1.84 million was allocated from ARPA funds. This deliberate allocation emphasizes the board's dedication to bolstering vital community services, effectively addressing distinct needs prevalent in the county, and ensuring impactful utilization of resources.
General Fund vs Special Revenue Fund
The following table highlights key differences between these two financial mechanisms, shedding light on their unique characteristics and the impact they have on fiscal management.
| Basis | General Fund | Special Revenue Fund |
|---|---|---|
| Nature of Revenue Source | It encompasses various revenue sources without specific restrictions. | Special revenue funds are tied to particular revenue sources and are strictly allocated to specific spending activities and accounts. |
| Scope and Objective | It manages both outflows and inflows with no constraints on fund origins or destinations. | Usage is restricted to certain spending activities, ensuring that cash outflows correspond to inflows in designated accounts. |
| Purpose of Fund | Primarily funds for the ongoing and general expenses of the government. | It is utilized for specific, often smaller-scale projects or purposes, aligning with the nature of the revenue source. |
| Accountability and Transparency | While transparency is essential, there are generally fewer restrictions on fund use, allowing flexibility. | Promotes high accountability and transparency in the utilization of taxpayers' funds, as expenditures are earmarked for specific purposes. |
| Illustrative Example | No specific earmarking of funds is used for various government functions. | Funds collected as donations for disaster relief must be allocated exclusively to disaster relief efforts. |
| Government Levels | It is collected at central, state, and local government levels, providing flexibility in resource management. | It is collected at various government levels, maintaining specificity in spending according to revenue source restrictions. |
Frequently Asked Questions (FAQs)
According to the Social Security Administration, social security is not a part of the general fund. The SSA has busted this myth. The confusion arose from the inclusion of the Social Security Trust Fund in the unified budget from 1969 to 1990. Social security is funded through a dedicated payroll tax.
No, the classification of the general fund as a major fund is contingent on its relative significance within a government's overall financial structure. While it often holds prominence due to its broad scope of revenue sources and diverse expenditures, designation as a major fund is determined by specific criteria set by accounting standards. Not every general fund automatically attains this classification.
Information on a state's general fund budget can typically be found in the official budget documentation provided by the state government. Most states offer detailed insights into revenue allocations, expenditures, and financial priorities. This information is often accessible through the state's official website or dedicated budgetary resources, ensuring transparency and accountability in fiscal matters.
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