Reviewed Date: 10/10/2016
City and state laws dictate a large portion of the budget process. There are also other guidelines cities must follow. The Government Finance Officers Association publishes a book titled 'Governmental Accounting, Auditing, and Financial Reporting' (GAAFR), commonly known as "The Blue Book". This book outlines standards for governmental agencies to follow known as “generally accepted accounting principles” (GAAP). Among these principles is the formation of funds. Per the 'Fiscal Administration, Analysis and Applications for the Public Sector' by John L. Mikesell, the definition of a “fund” is:
… an accounting device established to control receipt and disbursement of income from sources set aside to support specific activities or attain certain objectives. In the accounts of individual governments, each fund is treated as a distinct fiscal entity.
In simpler terms, a fund is a smaller record of incoming and outgoing money that is divided by type of activity.