Laws of superior jurisdictions and bond indentures commonly require local
governmental units to establish funds to account for debt service revenue. Under
GASB statement #34, the accrual basis of accounting is applied to the revenues
of a debt service fund in the same manner as those of general and special
revenue funds. The difference in regards to expenditures however, is that while
the general and special revenue funds use the full accrual basis, the debt
service fund uses a modified accrual basis. This means that the expenditures of
a debt service fund are to be accounted for in the year in which appropriations
for the payment of interest and principal are made, which is the year in which
the items are due. Since the debt service fund must stay in existence until all
general long-term debt is repaid, the fund is said to have an unlimited life.
Another key feature of the implementation of GASB #34 is that the general
long-term debt account group (GLTDAG) will be eliminated in regards to reporting
long-term debt and from the comprehensive annual financial report (CAFR). A fund
is classified as major it is significantly large with respect to the whole
government.
A fund is major if it meets certain requirements. First, total
assets, liabilities, revenues, or expenditures/expenses of the individual
government or enterprise fund must be at least 10 percent of the corresponding
total of assets, liabilities, revenues, or expenditures/expenses for all funds
of that category or type (total governmental or total enterprise funds). Second,
its total assets, liabilities, revenues, or expenditures/ expenses of the
individual governmental fund or enterprise fund are at least 5 percent of the
corresponding total for all governmental and enterprise funds combined. Using
the criteria established by GASB, it could be concluded that in most
governments, whether local, state, or federal, debt service funds are major
funds. Most governments do have long-term liabilities, and in fact, may run into
financial difficulty from borrowing against their expected future tax revenues.
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