Question

After reading the chapter chapter 7 content folder answer one of the following questions. 1. Describe the characteristics of a proprietary funds? Explain the difference between an Enterprise Fund and an Internal Service Fund? 2. When is it required to establish an enterprise fund? How does a enterprise fund show up in the Governmental Wide financial statements both the statement of Net Assets and Statements of Activities? 3. List at least 5 differences between a proprietary fund and a general fund?

Answer 1

A proprietary fund is used in governmental accounting to account for activities that involve business-like interactions, either within the government or outside of it. The two types of proprietary funds are enterprise funds and internal service funds. An enterprise fund is used to account for any activity for which external users are charged a fee for goods and services. An activity must be reported in an enterprise fund under any of the following circumstances:

• The activity is funded with debt that is only secured by a pledge of the net proceeds from the activity.
• The activity’s service provision costs must be recovered with fees, as stipulated by laws and regulations.
• The activity’s pricing policy is designed to recover its costs.

Internal service funds are similar to enterprise funds in that they are self-sustaining, depend on amounts charged for services rendered, and receive start-up resources. The difference is that users of their services are other departments of the same governmental unit or other governmental units. A computer center, a printing department, a central purchasing department, a central garage and self-insurance activities are accounted .