Capital Reserve Accounts

Modified on Mon, Aug 26 at 12:52 PM

Capital reserve accounts may be established by New Jersey school districts for the accumulation of funds to be used in subsequent years to implement capital projects in a districtís approved Long Range Facility Plan (LRFP). Restrictions exist in both statute and administrative code related to the fiscal activity in a capital reserve account. The following section provides examples of the journal entries required to account for the activity in a capital reserve account.

A capital reserve account is maintained in the general fund. Withdrawal activity is recorded in the capital outlay subfund (Fund 12). Withdrawals made to fund local support of a school facilities project are recorded in a fund transfer line in the capital outlay subfund (Fund 12) and subsequently transferred to the capital projects fund (Fund 30). There are five balance sheet coded accounts that are used in accounting for a capital reserve.

10-116 Capital Reserve Account: The restricted asset account comprised of investments held for future capital projects and the earnings attributable to those investments.
10-307 Budgeted Withdrawal from Capital Reserve-Eligible Costs: The budgetary account used to record the formal appropriation of eligible costs accumulated in the capital reserve account for current year appropriations.
10-309 Budgeted Withdrawal from Capital Reserve-Excess Costs: The budgetary account used to record the formal appropriation of excess costs accumulated in the capital reserve account for current year appropriations.
10-604 Increase in Capital Reserve: The budgetary account used to record increases in the capital reserve account for approved anticipated deposits.
10-761 Reserved Fund Balance-Capital Reserve Account: The fund balance account used for the segregation of fund balance equal to the capital reserve account balance (10-116), including any accrued interest required by law to be deposited into that account.

It should be noted that entries to fund balance are not made when establishing the account nor during the year when recording activity in the account. Entries to fund balance are made with closing entries at the end of the year to record the actual activity during the year.

Example - Budgeting a Withdrawal from the Capital Reserve Account:

A district has a July 1st capital reserve account balance and corresponding reserved fund balance of $717,000. For purposes of this illustration no other accounts have opening balances. The district has met the statutory and administrative code requirements for withdrawal and will begin to use the accumulated funds this year to fund the local support of an approved school facilities project.

The district has complied with the procedures governing withdrawals from the capital reserve and will withdrawal $400,000 to fund the local support of eligible costs, and $100,000 to fund excess costs of an addition to the elementary school. The capital reserve withdrawals are recorded in the capital outlay subfund and subsequently transferred to the capital projects fund. The local support is combined with the other sources of funds for the project (EDA grant, bond referendum) in the capital projects fund. The detailed accounting for the entire project is maintained in the capital projects fund. The remaining balance of the capital reserve account will be spent in the subsequent fiscal year.

The district included $6,000 of investment income in the annual budget, all of which will be earned on the capital reserve account. This anticipated interest is included in the budget as an increase in the capital reserve account of $6,000.