The town received a $5,000,000 endowment, the terms of which indicate that earnings on the endowment are to be used by health and welfare to provide vaccines to all citizens that are interested. Where would the $5,000,000 be recorded?

• A. General Fund
• B. Special Revenue Fund
• C. Permanent Fund
• D. Capital Projects Fund

Answer: (C)

Endowments that require the principal to be preserved in perpetuity and only allow earnings to be used for a specific government program are recorded in a Permanent Fund. In this scenario, the $5,000,000 is the endowment principal that must remain intact, while the earnings are designated to fund vaccines for citizens. That fits the purpose of a Permanent Fund, which holds the nonspendable principal and uses the earnings to support the government's programs. The other fund types are used for general operations (General Fund), restricted revenues for specific purposes within the year (Special Revenue), or for capital projects (Capital Projects), none of which capture the notion of preserving the endowment principal. So the $5,000,000 would be recorded in a Permanent Fund, with the principal held as nonspendable and the earnings available for the vaccine program.