FUND BALANCE TRAINING
PREPARED BY:
FRANKIE EZZAT, PRINCIPAL
ACCOUNTANT
CHART OF ACCOUNTS & ANALYSIS
DIVISION OF GENERAL ACCOUNTING
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Definition of Fund Balance
Fund Balance
– The difference between assets and
liabilities is reported as fund balance in governmental funds.
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Components of Fund Balance
Fund balance is divided into the following components:

Reserved

Unreserved
a. Designated Unreserved
b. Undesignated Unreserved

Reserved Fund Balance– The function of reserved fund
balance is to isolate the portion of the fund balance that is not
available for discretionary spending. Legal restrictions on
spending, fund balance is reserved to indicate situations
where a portion of fund balance is not available for new
spending because of legal restrictions involving parties
outside the financial reporting entity. Restrictions are
imposed by parties outside the government, laws and
regulations.
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Components of Fund Balance (Continued)…

Unreserved Fund Balance - is divided into Designated and
Undesignated fund balance.
a) Designated Unreserved Fund Balance – represents
management’s intended use of resources and should reflect
actual plans approved by the government’s senior
Management (BOS).
Expressed another way, designations reflect a government’s
self-imposed limitations on the use of otherwise discretionary
fund balance.
b) Undesignated Unreserved Fund Balance – available
expendable financial resources in a governmental fund that are
not subject to tentative management plan (i.e., designate).
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Usage of Fund Balance
Fund balance serves as a measure of current available financial
resources.
Used for:
 At year-end closing all the operational activities (revenues and
expenditures) will close out to fund balance, increasing or
decreasing beginning fund balance as it rolls forward to the next
year.
Not used for:
 Not to record year to date transactions. Year-to-date
transactions must go through operations (revenues and
expenditures).
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Usage of Fund Balance (Continued)…
Scenario 1 - Use of Fund Balance in Fund 10000:
Sheriff department received revenue of $100,000 in FY 03. The source was
not used since the funding has restricted use (based on external
restrictions) the $100,000 must be reclassified to Reserved Fund Balance at
the end of the year. Entries recorded in FY 03:
10000-2500100000-101100-Cash
10000-2500100000-773520-Revenue
10000-2500100000-325100-Unresv.Undesign.
10000-2500100000-308105-Reserved
Debit
$100,000
Credit
$100,000
$100,000
$100,000
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Usage of Fund Balance (Continued)…
In FY 04, Sheriff department would like to use the $100,000.
What’s the process and the required entries in FY 04?

Since it’s going to be expended in FY 04, it needs to be
appropriated in FY 04 as well. Appropriation can be
established through the budget or later with a Form 11.

The Form 11 should state the following changes :
 Increase Appropriation of fund 10000
 Decrease Reserved FB of fund 10000
 Increase Unreserved Undesignated FB of fund 10000

Once the balance is in Unreserved undesignated FB, the
department can start expending out of the appropriation.
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Usage of Fund Balance (Continued)…
Scenario 2 -Use of Fund Balance in Sub-fund and Expending out
of Fund 10000:
Fund 11062, Executive Office. There is a reserved fund balance of
$150,000 which originally resided in the trust fund, therefore it was
reserved in fund 11062. In FY 04, the EO would like
to use the $150,000 and post the transactions out of fund 10000
instead of sub-fund 11062.
What’s the process and the required entries?
 It needs to be appropriated in FY 04.
The Form 11 should state the following changes:
Increase Appropriation of fund 10000
Decrease Reserved FB of sub-fund 11062
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Usage of Fund Balance (Continued)…
Since the department has to expend out of fund 10000, the following
entries are to be recorded by ACO once the Form-11 is approved.
The request for the entries must be included as an attachment to
ensure posting of the entries by ACO.
Debit
Credit
11062-1100100000-308118-Reserved
$150,000
11062-1100100000-101100-Cash
$150,000

10000-1100100000-101100-Cash
$150,000
10000-1100100000-325100-Unreserv. Undesign.
$150,000
Balance is reclassified to fund the expenditures of sub-fund 11062.
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Usage of Fund Balance (Continued)…
Scenario 3 - Recording Revenue in Multiple Funds (Fund 10000 &
Sub-fund 11065):
Sub-fund of the General Fund11065, Executive Office. In this example,
a cash receipt for $100,000 was received in FY 04 and of this amount,
$60,000 belongs to fund 10000 and the remaining balance stays in
the sub-fund 11065. Required Entries:
Debit
Credit
11065-1100100000-101100-Cash
$40,000
11065-1100100000-774710-Revenue
$40,000
10000-1100100000-101100-Cash
10000-1100100000-774710-Revenue
$60,000
$60,000
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Usage of Fund Balance (Continued)…

If the total receipt is posted to sub-fund 11065 at the time it was
received, the following entries to be recorded:
Debit
11065 - 110010000-101100
11065 - 110010000-774710
Credit
$60,000
$60,000
10000 - 110010000-101100
$60,000
10000 - 110010000-774710
$60,000
To record General Fund portion of the receipt from fund 11065.
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Usage of Fund Balance (Continued)…
Scenario 4 – Use of Fund Balance in Sub-fund 20001:
Department of Transportation, sub-fund 20001 has a fund balance of
$50,000 that was carried over from FY 03. In FY 04 the department
would like to use the balance.
What’s the process and the required entries?
 It needs to be appropriated in FY 04.
The Form 11 should state the following changes:
Increase Appropriation of fund 20000
Decrease Reserved FB of sub-fund 20001
No additional entries required once the appropriation is
approved, expenditures can be posted against the
appropriation.
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Usage of Fund Balance (Continued)…
Scenario 5– Use of Fund Balance in Sub-fund 20001 and
Expending out of Fund 20000:
Department of Transportation, sub-fund 20001 has a fund balance
of $60,000 from prior year. In FY 04 the department would like to
use the resource and post the transactions out of fund 20000.
What’s the process and the required entries?
 It needs to be appropriated in FY 04.
The Form 11 should state the following changes:
Increase appropriation of fund 20000
Decrease reserved FB of sub-fund 20001
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Usage of Fund Balance (Continued)…
Since the department has to expend out of fund 20000,the following
entries are to be recorded by ACO once the Form-11 is approved. The
request for the entries must be included as an attachment to ensure
posting of the entries by ACO
Required Entries:
Debit
Credit
20001-3130100000-308118-Reserve
$60,000
20001-3130100000-101100-Cash
$60,000

20000-3130100000-101100-Cash
$60,000
20000-3130100000-325100-Unreserv.Undesign
Balance reclassified to fund expenditures of fund 20001.
$60,000
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Usage of Fund Balance (Continued)…
Scenario 6– Posting to Deferred Revenue instead of Revenue in
Sub-fund 11022: Mental Health Substance Abuse received
$30,000 from collection of fees and fines (CAI month-end
distribution) from Courts in the current year.
Required entries:
Debit
Credit
11022-4100500000-101100- Cash
$30,000
11022-4100500000-731260- Other fines
$30,000
Note: By inappropriately recording transactions to deferred revenue,
we are understating current year revenues, fund balance and
overstating liabilities in the fund.
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Frequent Erroneous Postings To Fund Balance

It’s very crucial to make sure we
understand the usage of fund
balance and how we are
recording operational
transactions (revenues and
expenditures) which ultimately
close out to fund balance.
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Frequent Erroneous Postings To Fund Balance (Continued)…
Here are a few examples of erroneous postings:
1. Fund Balance (already recognized as revenue in prior year)
reclassified from Sub-fund to the budgetary fund as
REVENUE of the current year.
In prior year the balance was recognized as revenue, and as
part of the year-end process it closed out to the fund balance.
Recognizing it again would be duplication and it will overstate
current year revenues and understate beginning fund
balance.
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Frequent Erroneous Postings To Fund Balance (Continued)…
2.
The amount was brought in the sub-fund as revenue and
reclassified to the budgetary fund as revenue again
(without reducing the revenue in the sub-fund).
 If the amount needs to be recognized in the budgetary fund
and not the sub-fund, then we need to decrease revenue
and cash in the sub-fund and increase cash and revenue in
the budgetary fund.
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Frequently Erroneous Postings To Fund Balance
3.
Usage of deferred revenue for convenience to avoid posting
entries to various sub-funds.
 Deferred revenue account should be used ONLY if the resource
inflows do not meet the criteria for revenue recognition.
Unearned amounts are always reported as deferred revenue.
 In governmental funds, earned amounts are also reported as
deferred revenue until they are available to liquidate liabilities of
the current period.
Note: For County of Riverside, the availability period for revenue
recognition is 12-months, therefore longer than 12-months
needs to be reported as deferred revenue.
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Closing Rules

At the end of the year, all expenditures and revenues close out to a
fund balance account and with the PeopleSoft system we can direct
the system to have different fund balance accounts for each fund if
necessary.
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ACO Contact

For any further questions on this presentation or any questions
related to fund balance, please contact:
Frankie Ezzat at 5-3851 or via e-mail fezzat@co.riverside.ca.us.
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