FUND ACCOUNTING TRAINING

Module 2

Current Funds

The University of Texas System

OBJECTIVES
Obtain understanding of:
 Difference between Current Funds and Noncurrent
Funds
 Difference between Unrestricted and Restricted
Funds
 Three fund categories in Unrestricted Funds:
o Educational and General
o Designated
o Auxiliary Enterprises
 How/why transactions are posted to these funds
 Some basic journal entries

U. T. System Office of the Controller 2

CURRENT FUNDS
Definitions and General Information:
Current Funds are resources that are expendable, in the near term, for the
chief missions of the institution:
Instruction Research
Patient Care Public Service
Auxiliary Enterprises
These resources are available for operating purposes; therefore, Current
Funds are sometimes referred to as “Operating Funds.”
The Current Funds 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.
U. T. System Office of the Controller 3
CURRENT FUNDS (CONTINUED)
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, 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 that his gift be used for the construction of a
new gymnasium. Since this is a nonoperating purpose, it will most appropriately be
recorded initially in Plant Funds as gift revenue for capital acquisition.

U. T. System Office of the Controller 4

 CURRENT FUNDS (CONTINUED)
Another donor requests that 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 as “Gift Contributions for Operations.”
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 done, 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.
There cannot be a direct addition to endowment funds under such circumstances because
of the need to disclose the administrative decision to move funds available for operations
to another fund group.

U. T. System Office of the Controller 5

EXAMPLES:

A donor stipulates that his gift is to be used to

construct a gymnasium.
This is a nonoperating purpose.
The gift should be recorded initially in Plant Funds.

U. T. System Office of the Controller 6

EXAMPLES:

A donor requests that 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

U. T. System Office of the Controller 7

CURRENT FUNDS (CONTINUED)
Review: Current Funds are
Instruction used to support the missions
of the institutions
Auxiliary
Enterprises

Research Public Service

U. T. System Office of the Controller 8

CURRENT FUNDS (CONTINUED)

In addition to reporting revenues by source and expenses by

classifications, transactions must be shown in the appropriate fund
category. In Current Unrestricted Funds there are three fund categories:
• Educational and General funds (called “General Funds”)
• Designated Funds
• Auxiliary Enterprises funds

Unrestricted Restricted

Educational Auxiliary
and General Enterprises
Designated

U. T. System Office of the Controller 9

UNRESTRICTED CURRENT FUNDS 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 Assets (SRECNA) (Exhibit B). Examples of these sources are:

 Tuition and Fees

 State Appropriations
 Sales and Services of Hospitals, Educational Activities,
or Auxiliary Enterprises
 Professional Fees

U. T. System Office of the Controller 10

 UNRESTRICTED CURRENT FUNDS REVENUES
(CONTINUED)
The Annual Financial Report classifies expenses by both functional and
natural classifications. The following lists the classifications utilized.
Functional Natural
 Instruction  Salaries and Wages
 Research  Payroll Related Costs
 Public Service  Professional Fees and Services
 Hospitals/Clinics  Materials and Supplies
 Academic Support  Repairs and Maintenance
 Student Services  Travel
 Institutional Support  Utilities
 Operations and Maintenance of  Scholarships and Fellowships
Plant  Depreciation
 Scholarships and Fellowships  Etc.
 Auxiliary Enterprises
 Depreciation
U. T. System Office of the Controller 11
EDUCATIONAL AND GENERAL FUNDS REVENUES

Educational and General (E&G) Funds – these funds can be used for
any lawful purpose. The largest revenue items in this fund include:

 State Appropriations
 Hospital Revenues
 Tuition

U. T. System Office of the Controller 12

EDUCATIONAL AND GENERAL FUNDS EXPENSES

Educational and General Fund expenses are largely attributable to:

 Instruction
 Hospital/Clinics
 Operation and Maintenance of Plant

U. T. System Office of the Controller 13

DESIGNATED FUNDS REVENUES

Designated Funds – These funds are also known as “Board‐Designated

Funds,” since the institution’s 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:

 Professional Fees from medical institutions’ practice

plans
 Designated Tuition
 Sales and Services of Educational Activities

U. T. System Office of the Controller 14

DESIGNATED FUNDS EXPENSES
Primary uses of Designated Funds include:

 Instruction
 Hospital/Clinics
 Institutional Support

U. T. System Office of the Controller 15

AUXILIARY ENTERPRISE FUNDS

Auxiliary Enterprise Funds – An

auxiliary enterprise exists to furnish
goods or services to students, faculty  Dormitories
or staff, and it assesses a charge
directly related to, although not  Athletic programs
necessarily equal to, the costs of the  Food services
goods or services.
 Parking facilities
Distinguishing characteristics of an  Bookstores
auxiliary enterprise is that it is
managed as a self‐supporting
activity. Examples of auxiliary
enterprises include:

U. T. System Office of the Controller 16

AUXILIARY ENTERPRISES FUNDS REVENUES
There are two principal revenue categories in this fund group for the
U. T. System:

 Tuition and Fees

 Auxiliary Enterprises

U. T. System Office of the Controller 17

 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 Assets) 117,439

U. T. System Office of the Controller 18

 JOURNAL ENTRY EXAMPLE
To record the receipt of Auxiliary Enterprise Funds:

Account/Transaction Description Dr. Cr.

Auxiliary Enterprise Funds
Cash 27,426
Student Service Fees (Increases Net Assets) 27,246

U. T. System Office of the Controller 19

Transfers Between Funds

 Mandatory –Transfer required by an external source

 Non‐Mandatory – Transfer based on an internal
management decision

U. T. System Office of the Controller 20

Transfers Between Funds (Continued)
Transfers Between Funds – Transferring or moving money between various
funds is accomplished with a transfer journal entry. Inter‐fund transfers are
classified as either Mandatory or Non‐mandatory. If the transfer is required
by an external source (i.e., bondholders or donors) 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
U. T. System is part of the State of Texas Consolidated Annual Financial
Report.
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.
U. T. System Office of the Controller 21
 JOURNAL ENTRY EXAMPLE
To record non‐mandatory transfer from E&G to Designated Funds:

Account/Transaction Description Dr. Cr.

Educational and General Funds
Interfund Transfer (Reduces Net Assets) 4,975
Cash 4,975
Designated Funds
Cash 4,975
Interfund Transfer (Increases Net Assets) 4,975

U. T. System Office of the Controller 22

Due To/Due From Other Funds
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.

U. T. System Office of the Controller 23

 JOURNAL ENTRY EXAMPLE
To record non‐mandatory transfer from Designated Funds to Unexpended Plant
Funds:
:
Account/Transaction Description Dr. Cr.
Designated Funds

Due From Unexpended Plant funds 100,000

Cash (No affect on Net Assets) 100,000

Unexpended Plant Funds

Cash 100,000

Due to Designated Funds (No affect on Net Assets) 100,000

U. T. System Office of the Controller 24

RESTRICTED FUNDS
Restricted Current Funds consist primarily of gifts and sponsored program (grant and
contract) funds from federal, state, and local governments, foundations, or private
donors, which are restricted as to how they can be spent.
The largest donor categories are typically “private” and “federal.” The primary
purposes for which these funds are expended are student aid and research. For
reimbursement type grants, a portion of research costs is recovered from the donor
as an “indirect cost recovery.” 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 the Designated Funds category.
The actual expenses are not directly traced to particular sponsored projects. Instead,
an “indirect cost recovery rate” is calculated and applied to the project costs.
For example, a National Institutes of Health grant of $100,000 with an indirect cost
recovery rate of 50%, would be reimbursed at $150,000 ($100,000, plus $100,000 x
50%).

U. T. System Office of the Controller 25

 JOURNAL ENTRY EXAMPLE
To record expenses for the direct and indirect expenses associated with a federal
grant:

Account/Transaction Description Dr. Cr.

Restricted Funds

Expenses ‐ Direct 100,000

Cash (Reduces Net Assets) 100,000

U. T. System Office of the Controller 26

 JOURNAL ENTRY EXAMPLE
To record the entry to establish a receivable from the federal government and
to reduce the amount of federal sponsored program revenue (related to
indirect costs) that is later recognized in Designated Funds:

Account/Transaction Description Dr. Cr.

Restricted Funds
Federal Accounts Receivable 150,000
Federal Sponsored Programs Revenue 150,000
(Increases Net Assets)
Indirect Cost Recoveries Expense (Contra Revenue) 50,000

(Decrease in Net Assets)

Cash 50,000

U. T. System Office of the Controller 27

 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 Recovered Revenue 50,000
(Increases Net Assets)

U. T. System Office of the Controller 28

 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

U. T. System Office of the Controller 29

RESTRICTED FUNDS
Sponsored Projects
‐‐‐‐‐‐(Grants and Contracts)‐‐‐‐‐‐ Private Donations

Cost Reimbursement,
Cash Drawdown or Cash Advances Gift Contributions
Milestone
This is an illustration of
Federal,
how the different types Foundations
State,
of sponsored projects and Private
Local, and
affect net assets:
Private

Does Not Generally

Increase Net Increase Net
Assets Assets

U. T. System Office of the Controller 30

RESTRICTED FUNDS ‐ PLEDGES
A private donor may pledge to give an institution a restricted gift for
operating or capital construction purposes. Restrictions stipulated by the
donor can take the form of time requirements (time period of when funds
may be used) and purpose restrictions (purpose for which funds are required
to be used). In these cases, the entire 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. Restricted Net
Assets increase by the amount of the gift pledge receivable.
When funds are transmitted in advance of all eligibility requirements being
satisfied, then Restricted Net Assets do not increase because of deferred
revenue liability is recognized. Indirect cost recoveries do not apply to gifts
and gift pledge arrangements.

U. T. System Office of the Controller 31

RESTRICTED FUNDS – PLEDGES (CONTINUED)
As an example, a four‐year, $1,000,000 gift pledge ($250,000 per year) is
received from a private donor to cover indigent hospital care (no eligibility
requirement). In the financial statements, the present value discounted
amount would be shown as a Gift Pledge Receivable in the amount of
$835,779 (present value) on the Balance Sheet (Exhibit A) and as gift revenue
on the SRECNA (Exhibit B).
As the pledge is collected, the pledge receivable is reversed and cash is
recognized on the Balance Sheet. The difference between the present
valued pledge and the cash received is recorded as gift revenue on the
SRECNA. Unlike cost reimbursement contracts and grants, gift revenues are
not recognized to the extent of related expenses.

U. T. System Office of the Controller 32

RESTRICTED FUNDS – PLEDGES (CONTINUED)
Finally, 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. This
treatment results from the time requirement that the institution must
maintain indefinitely for these types of resources. Resulting Net Assets on
the Balance sheet must be reported as restricted for as long as the provider’s
purpose restrictions or time requirements remain in effect.

U. T. System Office of the Controller 33

CONCLUSION
You have completed this module of the Fund
Accounting Training. Exit the training by clicking
the link below and access the next module.

http://www.utsystem.edu/cont/training.html

U. T. System Office of the Controller 34