CPA Exam - FAR (Financial Accounting and Reporting)State and Local GovernmentsEasy
A local government operates a central motor pool that provides vehicle maintenance and fueling services to various governmental departments on a cost-reimbursement basis. This motor pool charges user departments for the actual costs incurred, including depreciation. Which type of fund would most appropriately account for the activities of this motor pool?
- ASpecial Revenue Fund
- BEnterprise Fund
- CInternal Service Fund
- DGeneral Fund
Show answer & explanationAnswer & explanation
Correct answer: C. Internal Service Fund
Internal Service Funds are used to account for goods or services provided by one department or agency to other departments or agencies within the same governmental unit, typically on a cost-reimbursement basis.
Why the other options are wrong
- A. Special Revenue Funds account for specific revenue sources legally restricted for specific operating purposes.
- B. Enterprise Funds account for services provided to the general public, typically on a user-charge basis, similar to a business.
- D. The General Fund accounts for general governmental operating activities, not inter-departmental services.
Internal Service Fund
A type of proprietary fund used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the governmental unit, or to other governmental units, on a cost-reimbursement basis.
- Proprietary fund type.
- Primarily serves other government departments.
- Charges user departments for services (cost-reimbursement).
Memory trick: Governments use 'PIES' for their internal services.