What is the primary purpose of Agency Funds in government accounting?

The primary purpose of Agency Funds in government accounting is to account for assets held on behalf of others. These funds are used to manage resources that the government holds temporarily but does not have ownership over. For example, a local government might use Agency Funds to manage tax collections that will be distributed to various agencies or organizations, such as school districts or public welfare programs. The government acts merely as an intermediary, collecting and disbursing the funds as designated by law or agreements.

This function underscores the temporary nature of Agency Funds, as they are not intended for generating revenue or financing government operations directly. Instead, they ensure that the resources can be tracked accurately and can be distributed according to the relevant legal or regulatory frameworks. This distinguishes them from other types of funds, such as governmental funds which operate as part of the government's overall budget and financial operations.