Question

What are some differences between proprietary funds and private businesses since they basically are run the same?

Answer 1

Proprietary funds are used to record those transactions of the government activities where they earn revenue by providing goods and services to public or inter-government departments. Transactions are done on a cost-reimbursement or on a user charge basis. This is similar to business activities by private businesses. However, there are some key difference like:-

1. The statement of net assets is made instead of a balance sheet by private businesses.

2. Statement of revenues, expenses, and changes in fund net assets instead of the income statement by income statement by private businesses.

3. Statement of cash flows as per GASB, whereas private businesses use GAAP/IFRS/FASB.

4. Businesses under proprietary funds include Airports, Water and sewer, gas and electric utilities, etc. Private businesses are into other more commercial businesses where the government does not have a monopoly.

4. Funds are divided into restricted and non-restricted, unlike private businesses.

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