Which statement correctly differentiates general funds from special funds?

• A. Special funds fund general operations
• B. General funds fund capital projects
• C. They are not earmarked
• D. General funds fund general operations

Answer: (D)

The distinction being tested is how funds are used: general funds are for day-to-day operating activities, while special funds are set aside for a specific program or purpose and are restricted to that use. The statement that general funds fund general operations is the best answer because it captures the primary role of the general fund—financing the routine, ongoing activities of government (salaries, utilities, maintenance, admin services, etc.). Special funds, by contrast, are earmarked for particular programs or projects and aren’t meant to cover broad, general operations.

Why the other statements don’t fit as the defining difference: saying special funds fund general operations would imply they’re used for broad activities, which goes against their restricted, purpose-specific nature. Claiming that “they are not earmarked” is false because special funds are exactly earmarked for designated uses. And claiming general funds fund capital projects overlooks the main purpose of the general fund, which is to cover operating expenditures rather than serving as the dedicated source for capital projects.