What are the three primary categories of funds in governmental accounting?

In governmental accounting, the three primary categories of funds are Governmental, Proprietary, and Fiduciary. Each of these categories serves a distinct purpose in managing public resources and ensuring accountability.

Governmental funds account for most of a government's activities and are used to report on the provision of public services, such as education, law enforcement, and infrastructure. This includes various subcategories, such as the General Fund, Special Revenue Funds, and Capital Projects Funds.

Proprietary funds are used to account for a government’s business-type activities. These funds operate similarly to private-sector businesses, where the goal is to generate revenue and cover costs. Examples include enterprise funds for services like water, sewage, or public transportation.

Fiduciary funds are used to account for resources that the government holds in a trust or agency capacity for others. This includes pension funds, investment trust funds, and other types of activities where the government acts as a custodian rather than an owner.

Understanding these fund types is crucial for government financial reporting, as it helps delineate how resources are allocated and managed in the public sector. The other answer choices do not encompass the full range of categories recognized in governmental accounting.