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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