What type of fund is established if a donation is made where the principal is not expendable?

A fund established from a donation where the principal is not expendable is classified as a Permanent Fund. In the context of governmental accounting, Permanent Funds are used to account for resources that are legally restricted to the extent that only the earnings, and not the principal, may be used for purposes that support the government’s program or services.

This means the principal amount remains intact over time and is invested to generate earnings. The earnings can then be utilized for public purposes, but the original donation itself must be preserved. This distinction is crucial in understanding the nature of funds in governmental accounting, particularly regarding their restrictions and intended use.

Special Revenue Funds and Trust Funds serve different purposes. Special Revenue Funds are used to account for revenues that are designated for specific purposes other than debt service or capital projects. Trust Funds are established to account for assets held by a governmental entity in a trustee capacity for individuals, private organizations, or other governments. The General Fund is the main operating fund of a government and is used for the day-to-day activities, and does not typically include such restrictions as found in Permanent Funds.