Lesson 3: Overview of Classifying Federal Funds

Proprietary Funds — Operating, Non-Operating and Capital Contributions

Proprietary federal funds (whether direct or pass-through) must be further classified as either:

• Operating activity
• Non-operating activity
• Capital contributions

Some federal award agreements may include provisions indicating whether the funds may be used for the agency’s operating activities or applied to capital projects.

Operating Activities

Generally, operating activities are the direct result from the provision of goods and services to customers or are directly related to the principal use of the fund.

Non-Operating Activity

Non-operating activities include most non-exchange and exchange-like transactions, including grants and contributions not restricted to operating or capital.

Capital Contributions

Grants and contributions restricted to capital are reported as capital contributions.

When determining if federal funds should be classified as either operating or non-operating, consider how the individual transactions for the federal funds are classified in the Statement of Cash Flows. Using an operating COBJ versus a non-operating COBJ will determine the classification of transactions when producing the Statement of Cash Flows. For more information on operating transactions, see the AFR Reporting Requirement’s Statement of Cash Flows page.

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