Beams9eSM_Ch20

Beams9eSM_Ch20 - Chapter 20 AN INTRODUCTION TO ACCOUNTING...

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Chapter 20 AN INTRODUCTION TO ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS — PROPRIETARY AND FIDUCIARY FUND Answers to Questions 1 Enterprise and internal service funds are similar in the sense that their operations are like those of similar business enterprises. They use full accrual accounting practices (including depreciation), have a capital maintenance or profit objective, are financed through user charges, and have the same financial reporting requirements. The primary difference between the two fund types is that an EF provides goods and services to citizens and customers outside the government on a user charge basis, while an ISF provides services to other departments and agencies within the same governmental unit (or occasionally to other governmental units). 2 Typical operations of internal service funds include motor pools, centralized risk financing activities, data processing services, printing shops, centralized purchasing, repair shops, and storage or warehouse operations. Internal service funds may engage in almost any kind of operations that one would find in private enterprise. 3 An EF (and also an ISF) is required to prepare a statement of net assets, a statement of revenues, expenses, and changes in net assets (or fund equity), and a statement of cash flows for fair presentation in accordance with GAAP. 4 In the fund financial statements, governments include internal service funds with the proprietary funds. They are aggregated into a single column within the proprietary fund statement of net assets, the statement of revenues, expenses, and changes in net assets, and the statement of cash flows. Within the government-wide statements, governments report internal service funds with the governmental activities. The internal service fund asset and liability accounts are included in the governmental activity column of the statement of net assets. The statement of activities will include only those internal service fund transactions involving entities other than the primary reporting entity. Governments add external internal service fund revenues and expenditures to the statement of activities, but they exclude internal governmental transactions. 5 Internal service funds are never considered major funds and proprietary fund statements report internal service funds with the enterprise funds. 6 Because proprietary funds account for transactions in much the same manner as commercial business organizations, the GASB allows some reference to FASB statements. GASB Statement No. 20, “Accounting and Financial Reporting for Proprietary Activities,” governs which accounting and reporting standards apply to proprietary activities. 7 It is important to differentiate between revenues generated by interfund transactions and transactions with external parties because of the way that these transactions are reported on the government-wide statements. The statement of activities will include only those internal service fund transactions involving
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This note was uploaded on 01/29/2009 for the course BA 459 taught by Professor Slattery during the Spring '09 term at Southern Oregon.

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Beams9eSM_Ch20 - Chapter 20 AN INTRODUCTION TO ACCOUNTING...

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