Special Revenue Fund

What is the Special Revenue Fund?

A special revenue fund is a fund that is used by government entities to accumulate proceeds from certain revenue sources whose use is restricted to specific purposes or activities. The primary reason for establishing such a fund is to demonstrate accountability and transparency when tracking cash inflows and outflows for special purposes. Through a special revenue fund, the government ensures it maintains the accountability of specially-allocated funds.

Understanding Special Revenue Funds

In accounting, revenues are recognized when they are earned and are reasonably estimable (subject to the accrual concept). Judgment is paramount when determining the materiality of the revenues collected within the current accounting period, and how the accounting principles are applied. Expenses are recognized when incurred, and are offset against related revenues using the matching principle.

Generally, goods and services received before the end of the government’s fiscal year are recorded, and a liability is incurred. The general fund and special revenue fund are used to segregate discernable transactions. Under the current rules, the emphasis is on capturing the proceeds of specific revenue sources and accumulating them during the accounting period. Thus, the general and special revenue funds do not record liabilities and long-term assets.

Nature and Use of Special Revenue Funds

The Government Accounting Standards Board (GASB) Statement 54 outlines the use of a special revenue fund by the government to resolve any ambiguities between a special revenue fund and other funds. GASB Statement 54 states that government entities should use the special revenue fund to account for certain revenues from specific sources whose use is restricted to specific activities other than serving debts or capital projects.

It is worth noting that only revenues that are specifically assigned are allocated to a special revenue fund. Assigned resources refer to the unrestricted or unassigned proceeds whose uses are limited by the government’s intent.

On the other hand, unassigned resources refer to resources that are neither assigned nor commuted for use. Therefore, the implementation of GASBS 54 may practically result in reporting and accounting for most resources in a general fund since the special revenue fund no longer qualifies to account for them.

The government is not obliged by GASBS 54 to report restricted or committed resources in the special revenue fund and can opt to use it or not. Special revenue fund is governed by various laws and guidelines, which require the use of the fund balance to meet any regulations or disclosures.

Other Provisions

Here are the special provisions of a special revenue fund that governments should take into account:

• Resources to be reported in a special revenue fund as defined in the GASBS 54 means that committed resources for special use are the reason behind creating a special revenue fund. Simply put, contributions or revenue sources should drive the creation of special revenue funds and not derived from any proposed activities.
• If a special revenue fund receives committed or restricted proceeds from another fund, the proceeds are not recognized as revenues in the fund that had earlier received them. Instead, the proceeds’ are recognized as special-purpose revenue.
• A special revenue fund cannot be used to report and account for revenues held in trust on behalf of private organizations, individuals, or the government.

Special Considerations

Under the GASBS 54, restricted or committed resources should continually comprise a large part of the reported inflows in the special revenue fund. The government may also report other proceeds, such as earning from investments or transfer from other funds, provided the proceeds are expended in accordance with their purpose.

If a significant portion of the inflows is not expected to come from the committed revenue sources, the government is obliged to stop reporting a special revenue fund. Rather, the fund’s remaining proceeds should be reported to the general fund.

For the sake of transparency and openness, the government is required by GASBS 54 to disclose each of the major special revenue funds in notes to the financial statements. In each of the funds, it is further required to specify the type of reported resources.

A special revenue fund is also used to account for the government’s miscellaneous revenues, such as inspection fees, parking charges, parking meters receipts, and many more. Government seized assets, such as fines and forfeitures, are also required to be maintained in a special revenue fund.

Additional Resources

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)® certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

• Accounting Cycle
• Revenue Recognition
• Sources and Uses of Funds Statement
• Three Financial Statements
• See all accounting resources