CPA Exam - FAR (Financial Accounting and Reporting)State and Local GovernmentsEasy
A municipal government operates a central print shop that provides printing services exclusively to its various departments (e.g., General Fund, Public Works). The print shop charges these departments fees that cover its operating costs, including depreciation of its printing equipment. Which type of fund would most appropriately account for the financial activities of this central print shop?
- ASpecial Revenue Fund
- BInternal Service Fund
- CEnterprise Fund
- DGeneral Fund
Show answer & explanationAnswer & explanation
Correct answer: B. Internal Service Fund
Internal Service Funds are used to account for the financing of goods or services provided by one department or agency of a primary government to other departments or agencies of the primary government, or to other component units, on a cost-reimbursement basis. The central print shop, serving only internal departments on a cost-recovery model, perfectly fits this description.
Why the other options are wrong
- A. Special Revenue Funds account for specific revenue sources legally restricted for specified purposes.
- C. Enterprise Funds provide services primarily to external users.
- D. The General Fund accounts for all financial resources except those required to be accounted for in another fund; it's not for self-supporting internal services.
Internal Service Fund
A proprietary fund used to account for the financing of goods or services provided by one department or agency of a primary government to other departments or agencies, or to other component units, on a cost-reimbursement basis.
- Proprietary fund type (full accrual)
- Provides services primarily to other internal government departments
- Operates on a cost-reimbursement basis (cost recovery)
- Examples: central motor pool, print shop, IT services
Memory trick: IE (Internal Service, Enterprise)