Texas A&M University System
Module 2-Current Funds
Fund Accounting Training
DE V E LO PED BY T H E SYSTEM O F F I CE O F BU D G E TS A N D
ACCO U N T I NG
OBJECTIVES
Obtain understanding of:
Proprietary Fund Statements
• Difference between Current Funds and Noncurrent Funds
• Difference between Unrestricted and Restricted Funds
• Three fund groups (columns) in Unrestricted Funds:
o Educational and General
o Designated
o Auxiliary Enterprises
• How/why transactions are posted to these fund groups
• Some basic journal entries
Fiduciary Fund Statements
• Stewardship
• 5 Types of Activities
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BASIS OF ACCOUNTING
The financial statements of the A&M System are prepared in
accordance with generally accepted accounting principles (GAAP) as
prescribed by the Governmental Accounting Standards Board (GASB)
pronouncements, the requirements of the Texas Comptroller of Public
Accounts, and the guidelines from the National Association of College
and University Business Officers (NACUBO)
There are two fund types presented in the primary statements
Proprietary Funds
Fiduciary Funds
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FUND TYPES
Proprietary Funds-the A&M System’s proprietary financial statements
are presented using the economic resources measurement focus and
the full accrual basis of accounting
◦ Under the accrual basis, revenues are recognized when earned, and
expenses are recorded when an obligation is incurred
◦ Operating activities are distinguished from non-operating activities
• Operating revenues and expenses result from providing services or producing and delivering
goods in connection with on-going operations
Fiduciary Funds-the A&M System’s fiduciary financial statements are
also presented using the economic resources measurement focus and
the full accrual basis of accounting
◦ Under the accrual basis, additions are recognized when earned, and
deductions are recorded when an obligation is incurred
◦ Under GAAP, these funds are considered Custodial Funds
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Proprietary
Current Funds
BY NACUBO FUND GROUPS
CURRENT FUNDS
Definitions and General Information:
Current Funds are resources that are expendable, in the near
term, for the chief missions of the institution or agency
Instruction Research
Public Service Academic Support
Student Services Institutional Support
Scholarships & Fellowships Auxiliaries
These resources are available for operating purposes;
therefore, Current Funds are sometimes referred to as
“Operating Funds”
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CURRENT FUNDS
Definitions and General Information:
The Current Fund group includes two basic subgroups: Unrestricted
and Restricted
Unrestricted Current Funds include all funds received for which a
donor or other external agency has not specified an expense
purpose
Restricted Current Funds are available for financing operations but
are limited by donors and other external agencies to specific
purposes, programs, departments, or schools
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CURRENT FUNDS-RESTRICTIONS AND PURPOSE
Externally imposed restrictions on funds are NOT the same as internal
designations imposed by the governing board
• Internal designations do not create restricted funds
• Removal of the designation remains at the discretion of the governing
board
When resources flow into an institution or agency, the purpose for
which they are made available dictates the fund group to which they
will be added
• Any resource that could be used for operating purposes must be
recorded initially as revenue in Current (Operating) Funds
• This is true for both unrestricted and restricted funds
For example, suppose a donor stipulates his gift is to be used for the
construction of a new gymnasium…since this is a non-operating
purpose, it will most appropriately be recorded initially in Plant Funds
as non-operating gift revenue for capital acquisition
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CURRENT FUNDS-RESTRICTED
A donor requests her donation be used “for the pharmacy department.”
In this case the resources could be used for operating purposes (in the
pharmacy department only) and should be recorded in Restricted
Funds.
• However, the constraint does not give a time period for the expense,
so the governing board may wish to transfer the resources from
Current Funds to Endowment and Similar Funds, where they will
“function as an endowment”
• If this is approved, the donor’s restriction applies to use of the income
from the investment
• The restriction will continue to apply for as long as the funds functioning
as endowments exist, and
• It would also apply to the endowment principal, if the governing board
subsequently decided to liquidate the funds function as endowment and
spend the principal
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EXAMPLES:
A donor stipulates that his gift is to be used to construct a gymnasium
This is a non-operating purpose
The gift should be recorded initially in Plant Funds
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EXAMPLES:
A donor requests her donation be used “for the
pharmacy department”
The resources could be used for operating purposes (in
the pharmacy department only)
The gift should be recorded in Restricted Funds
Restricted Funds differ
from Endowment Funds
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Review: Current Funds are
Instruction used to support the missions of
the institutions and agencies
Auxiliary
Enterprises
Research Public Service
CURRENT FUNDS-FUND GROUP
In addition to reporting revenues by source and expenses by
classifications, transactions must be shown in the appropriate fund group.
In Current Unrestricted Funds there are three fund groups:
• Educational and General funds (called “General Funds”)
• Designated Funds
• Auxiliary Enterprises funds
Unrestricted Restricted
Educational Auxiliary
and General Enterprises
Designated
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REVENUES
Unrestricted Current Funds are available for any current operating
purpose. Because there are no external constraints on the use of
these resources, unrestricted fund income is considered revenue
when earned. These revenues must be reported by source in the
year received on the Statement of Revenues, Expenses and Changes
in Net Position (SRECNP). Examples of these sources are:
Tuition and Fees
Sales and Services of Hospitals, Educational Activities,
or Auxiliary Enterprises
Professional Fees
State Appropriations (non-operating)
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OPERATING EXPENSES
The Annual Financial Report classifies operating expenses by both
functional and natural classifications. The following lists the
classifications utilized.
Functional Natural Classifications
Salaries and Wages
Instruction
Payroll Related Costs
Research
Professional Fees and Services
Public Service
Travel
Academic Support
Materials and Supplies
Student Services
Repairs and Maintenance
Institutional Support
Communication & Utilities
Operations and Maintenance of
Repair & Maintenance
Plant
Scholarships and Fellowships
Scholarships and Fellowships
Claims & Losses
Auxiliary
Depreciation/Amortization
Depreciation/Amortization
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E&G FUND REVENUES
Educational and General (E&G) Funds – these funds can be used for
any lawful purpose. The largest revenue items in this fund include:
Tuition & Fees
Sales of Goods & Services
State Grant Pass-through
State Appropriations (non-operating)
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E&G FUND EXPENSES
Educational and General Fund expenses are largely attributable to:
Instruction
Public Service
Academic Support
Student Services
Institutional Support
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DESIGNATED FUNDS REVENUES
Designated Funds – These funds are also known as “Board-Designated
Funds,” since management or the Board of Regents has internally
designated them for a specific use. These internal designations are not
the same as external restrictions. The internal designation may be
removed or altered at management’s discretion. The major revenues
reported in this fund group include:
Statutory Tuition & Fees
Sales and Services of Educational Activities
Investment Income
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DESIGNATED FUNDS EXPENSES
Primary uses of Designated Funds include:
Instruction
Research (departmental designated)
Public Service
Academic Support
Student Services
Institutional Support
Operation and Maintenance of Plant
Scholarships & Fellowships
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AUXILIARY FUNDS
Auxiliary Funds – An auxiliary fund
exists to furnish goods or services to
students, faculty or staff, and it Dormitories
assesses a charge directly related to,
although not necessarily equal to, Athletic programs
the costs of the goods or services Food services
Distinguishing characteristics of an Parking facilities
auxiliary enterprise is that it is Bookstores
managed as a self-supporting
activity, examples of auxiliary
enterprises include:
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AUXILIARY FUNDS REVENUES
There are several revenue categories in this fund group
Student Fees
Auxiliary Enterprises
Gift Revenue (non-operating)
Investment Income (non-operating)
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JOURNAL ENTRY EXAMPLE
To record the receipt of tuition and fees in E&G Funds:
Account/Transaction Description Dr. Cr.
Educational and General Funds
Cash 117,439
Tuition revenue (Increases Net Position) 117,439
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JOURNAL ENTRY EXAMPLE
To record the receipt of Auxiliary Funds:
Account/Transaction Description Dr. Cr.
Auxiliary Enterprise Funds
Cash 27,426
Student Service Fees (Increases Net Position) 27,246
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TYPES OF TRANSFERS BETWEEN FUNDS
Mandatory –Transfer required by an external source,
often debt service requirements
Non-Mandatory – Transfer based on an internal
management decision
Transfers to Other State Agencies
Transfers to Other A&M Members
Transfer of Capital Assets
Legislative Transfers
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Transfers Between Funds
Transfers Between Funds – Transferring or moving money between
various funds is accomplished with a transfer journal entry
Inter-fund transfers are classified as Non-mandatory
If the debt transfer is required by an external source or the A&M
System (i.e., payments to bondholders) it is referred to as a
Mandatory transfer
Non-mandatory transfer is one based on an internal management
decision.
Transfers made to meet requirements of other Texas state agencies
are recorded as transfers to/from other state agencies since the
A&M System is part of the State of Texas Consolidated Annual
Financial Report (CAFR)
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Common Transfers
In Current Funds, a common Non-mandatory transfer would be the
transfer of funds from Designated Funds to Educational and
General Funds to fund various educational and general expenses
Another example of a Non-mandatory transfer from Current Funds
would be the transfer of the Designated Tuition Fee allocated to
capital projects from Designated Funds to Unexpended Plant funds
Transfers can include transfer from service centers to Renewals &
Replacement fund group to fund future capital purchases
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JOURNAL ENTRY EXAMPLE
To record non-mandatory transfer from E&G to Designated Funds, specific
FAMIS codes help to ensure the transfers stay in balance.
Account/Transaction Description Dr. Cr.
Educational and General Funds
Interfund-Nonmandatory Transfer to Designated 4,975
(Reduces Net Position)
Cash 4,975
Designated Funds
Cash 4,975
Interfund-Nonmandatory Transfer to E&G (Increases 4,975
Net Position)
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Due To/Due From Other Funds
Due to/from Other Funds are specific types of receivables and
payables
• Due from is an asset
• Due to is a liability
One fund may need to advance funds to another fund on a
temporary basis
• For example, a gift to the University may be contingent upon a
particular building being constructed and named after the donor.
Unrestricted Current Funds may be advanced to Unexpended
Plant Funds to cover construction costs until receipt of the gift, at
which time Unexpended Plant Funds would return the advanced
funds.
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JOURNAL ENTRY EXAMPLE
To record Due to Designated Funds and Due from Unexpended Plant Funds
Account/Transaction Description Dr. Cr.
Designated Funds
Due From Unexpended Plant funds (asset) 100,000
Cash (No affect on Net Position) 100,000
Unexpended Plant Funds
Cash (No affect on Net Position) 100,000
Due to Designated Funds (liability) 100,000
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RESTRICTED FUNDS
Restricted Current Funds, which are restricted as to how
they can be spent, consist primarily of
• Gifts and
• Sponsored program (grant and contract) funds from federal,
state, and local governments, foundations, or private donors
o The largest donor categories are typically “private” and “federal”
The primary purposes these funds are expended for is
research and student aid
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INDIRECT COST RECOVERY (IDC)
Often a portion of research grants include “indirect cost
recovery” from the Donor
• Utilities or custodial services attributable to sponsored projects are
examples of reimbursable indirect costs
• These expenses are generally recorded in Unrestricted Current Funds,
normally in Designated Funds
• The actual expenses are not directly traced to particular sponsored
projects
• Instead, an “indirect cost recovery rate” is calculated and applied to the
project direct costs
For example, a National Institutes of Health grant for $100,000
direct costs with an indirect cost recovery rate of 50%, would
receive a total $150,000 ($100,000, plus $100,000 x 50%)
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JOURNAL ENTRY EXAMPLE
To record expenses for the direct and indirect expenses associated with a
reimbursable federal grant
Account/Transaction Description Dr. Cr.
Restricted Funds
Expenses - Direct 100,000
Cash (Reduces Net Position) 100,000
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JOURNAL ENTRY EXAMPLE
To record the entry to establish a receivable from the federal government and
to record indirect cost expense which is later recognized in Designated Funds
Account/Transaction Description Dr. Cr.
Restricted Funds
Federal Accounts Receivable 150,000
Federal Revenue-Operating 150,000
(Increases Net Position)
Indirect Cost Recoveries Expense 50,000
(Decrease in Net Position)
Cash 50,000
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JOURNAL ENTRY EXAMPLE
To record indirect costs recovered on federal grants as revenue in Designated
Funds
Account/Transaction Description Dr. Cr.
Designated Funds
Cash 50,000
Indirect Costs Revenue 50,000
(Increases Net Position)
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JOURNAL ENTRY EXAMPLE
To record the cash reimbursement received from the federal government
Account/Transaction Description Dr. Cr.
Restricted Funds
Cash 150,000
Federal Accounts Receivable 150,000
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Sponsored Projects
------(Grants and Contracts)------ Private Donations
Cost Reimbursement,
Cash Drawdown or Cash Advances Gift Contributions
Milestone
Federal, This is an illustration of
State, how the different types
Local, and of sponsored projects Foundations
Private affect net position and Private
Donors
Does Not
Increase Net Generally
Position Increases
Net Position
PLEDGES-REVENUE RECOGNITION
A private donor may pledge to give an institution a restricted gift
for operating or capital construction purposes
• Restrictions stipulated by the donor can have several forms
o Time requirements (time period of when funds may be used) and/or
o Purpose restrictions (purpose for which funds are required to be used)
In some cases, the entire pledge amount (recorded at present
value if a multi-year pledge and offset with an uncollectible
allowance, based on past experience) of the gift pledge is
recognized when all applicable requirements are satisfied or
funds are received, whichever occurs first
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PLEDGES-REVENUE RECOGNITION
Restricted Net Position increases by the amount of the gift
pledge receivable
When funds are transmitted in advance of all eligibility
requirements being satisfied, then Restricted Net
Position does not increase because an unearned
revenue liability is recognized
Note: Indirect cost recoveries do not apply to gifts
and gift pledge arrangements
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PLEDGE EXAMPLE
As an example, a four-year, $1,000,000 gift pledge ($250,000 per year) is
received from a private donor for student scholarships (no eligibility
requirements)
• In the financial statements, the present value discounted amount would
be reported as a Gift Pledge Receivable in the amount of $835,779
(present value) and gift revenue
o The Gift Pledge Receivable will be separated into current and non-current
• As the pledge is collected, the pledge receivable is reversed and cash is
recognized on the Statement of Net Position
• The difference between the present valued pledge and the cash received
is recorded as gift revenue on the SRECNP
• Unlike cost reimbursement contracts and grants, gift revenues are not
recognized to the extent of related expenses
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PLEDGED CAPITAL ASSETS
Gift pledges for endowments, historical treasures, and similar assets to
capitalized collections are only recognized in the financials when resources are
received, provided that all eligibility requirements have been met
The Capital Asset is recorded in Plant Funds with the Capital Contribution
revenue
The net position must be reported as ‘restricted’ net position for as long as the
provider’s purpose restrictions or time requirements remain in effect
• Net position is defined by the fund group
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Fiduciary Funds
CUSTODIAL FUNDS BY TYPE
Fiduciary Funds
Fiduciary Funds were required to issue their own set of
Financial Statements in FY 2020
All Fiduciary Funds are considered custodial funds, there
are no component units, pension or trust funds established
Fiduciary activities criteria focuses on
(1) whether a government is controlling the assets of
the fiduciary activity and
(2) the beneficiaries with whom a fiduciary relationship exists
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Categories (columns)
Student Organizations
Foundations/Alumni Associations
Public Private Partnerships (P3’s)
Other (consortiums)
Funds Invested for Outside Universities (System only)
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Statement of Fiduciary Net
Position
Assets, Liabilities and Net Position
Asset are reported in liquidity order
Net Position considered Restricted
◦ Restricted for Individuals, Organizations and Other Governments
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Statement of Changes in
Fiduciary Net Position
Separate section for Contributions
More focus on Investment Income to show the custodial
relationship
Subtotal for Investment Income net of Investment Fees
Additions & Deductions are more summarized, more items
included in ‘Other’
Review Transfers
◦ Allowed Between Agency and Agency, or between Fiduciary and Fiduciary
◦ Not allowed between Agency and Fiduciary, or any other fund groups
◦ Transfers from Other Funds and Transfers to Other Funds must match
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JOURNAL ENTRY EXAMPLE
To record the cash contributions from Foundations/Alumni Associations
Account/Transaction Description Dr. Cr.
Custodial Fund-Foundation/Alumni Associations
Cash 3,000,000
Contributions (Addition section) 3,000,000
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JOURNAL ENTRY EXAMPLE
To record the cash payments from Foundations/Alumni Associations accounts
Account/Transaction Description Dr. Cr.
Custodial Fund-Foundation/Alumni Associations
Payment Professional Services (Deduction section) 1,200,000
Cash 1,200,000
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JOURNAL ENTRY EXAMPLE
To record investment income and fees
Account/Transaction Description Dr. Cr.
Fiduciary-Custodial Funds
Cash 2,000
Investment Income-Interest 500
Investment Income-Realized Gain on Sale of 1,500
Investments
(Increases Net Position)
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CONCLUSION
Congratulations!
You have completed Module 2
Select the next presentation to continue to
learn about TAMUS and Fund Accounting
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