CPA Exam - FAR (Financial Accounting and Reporting)State and Local GovernmentsEasy
A local government operates a public library. The library receives significant contributions from the general public, charges nominal fees for overdue books, and relies heavily on property tax revenues transferred from the General Fund. Its primary mission is to provide free access to educational resources. Which type of fund would most appropriately account for the library's financial activities?
- AInternal Service Fund
- BSpecial Revenue Fund
- CEnterprise Fund
- DPermanent Fund
Show answer & explanationAnswer & explanation
Correct answer: B. Special Revenue Fund
Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted or committed to expenditure for specified purposes other than debt service or capital projects. The public library, with its reliance on specific tax revenues and contributions for its operations, fits this description.
Why the other options are wrong
- A. Internal Service Funds provide goods or services to other departments or agencies of the primary government and its component units, on a cost-reimbursement basis.
- C. Enterprise Funds account for activities financed and operated in a manner similar to private business enterprises, where user charges are the primary source of revenue.
- D. Permanent Funds are used to account for resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the primary government's programs.
Special Revenue Fund
A governmental fund used to account for the proceeds of specific revenue sources that are legally restricted or committed to expenditure for specified purposes other than debt service or capital projects.
- Used for specific revenue sources
- Revenues are legally restricted or committed
- Excludes debt service and capital projects
Memory trick: GRaSPP (General, Special Revenue, Debt Service, Capital Projects, Permanent)