A fund is a separate part of monetary assets that has a specific purpose. This is a financial instrument that is widely used in economic practice. Besides, it is typically professionally managed in order to allocate resources in a proper way. Such funds are generally supported by taxes, grants, and other income sources (Chase, 2020). They are primarily used as a means of accumulation and redistribution of national financial flows. In addition, there is a need to allocate extremely significant expenses for society and provide them with independent sources of income. The funds are also used to relieve the budget by taking over part of its expenses, thereby solving the problem of budget financing and increasing the resources mobilized by the state.
Fund balance helps to distinguish between its assets and liabilities. Reporting on fund balances is the principal measure for preserving assets that are not available for budget financing in the following period (Chase, 2020). In many respects, the balance of funds stands for the working capital, which can be further utilized for expenses or as a liquidity reserve. Many entities face a shortage in balancing their funds; hence, it is crucial to use a part of the budget to compensate for the decline in revenue and manage the current budget.
Specialized government funds are crated to balance, regulate, and generate cash and liabilities for specific projects in different fields. For instance, special revenue funds are developed for the payment of interest and principal on all ordinary debt obligations, serial and urgent, other than those that are repayable solely from the proceeds of special taxes or tax revenues in general. In other words, its pivotal aim is to collect money from the taxpayers for specialized projects and purposes (Chase, 2020). Moreover, the government may resort to using this fund in case it needs to report road works or federal grants. Their overall goal is to provide transparency in regards to the payers to ensure that their tax revenues go as intended.
The enterprise fund is a fund used for reporting an activity that requires charges. It is also a private-state financial structure that implements a state policy to assist small and medium-sized businesses. The main activities of the fund are: providing partial compensation for interest on loans received by small businesses in banking institutions; providing loans for the implementation of entrepreneurial projects through authorized banks. Generally, such funds are organized in the form of municipal enterprises, where the state has 80% or more of the founding capital, and the other founders are either non-profit organizations or entrepreneurs (Chase, 2020). Hence, its primary purpose is to ensure businesses pay taxes and sponsor their activities.
Capital projects fund refers to the organization that accounts for financial resources allocated for large (normally governmental) projects’ acquisition, renovation, construction, and other related activities. Capital projects require monetary contributions in depreciable assets and additional costs vital for putting fixed assets into operation. Despite the government being the leading investor, many other non-profit organizations are mainly interested parties.
In conclusion, a fund is part of financial assets and liabilities used for financing different projects. Numerous state funds are used for various purposes, including collecting and distributing taxpayer funds, investments in the construction or reconstruction of structures, and others. Funds are vital for multiplying governmental resources and ensuring monetary flow across the state. In general, funds are needed for accountability and transparency of financial operations.
References
Chase, B. (2020). Fundamentals of governmental accounting and reporting. Wiley.