CPA Exam - FAR (Financial Accounting and Reporting)State and Local GovernmentsMedium
A municipal government operates a central print shop that provides printing services to various city departments on a cost-reimbursement basis. This print shop charges user departments for the services rendered. Which type of fund is most appropriate for accounting for the operations of this central print shop?
- AGeneral Fund
- BEnterprise Fund
- CSpecial Revenue Fund
- DInternal Service Fund
Show answer & explanationAnswer & explanation
Correct answer: D. Internal Service Fund
Internal Service Funds are used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the same governmental unit, or to other governmental units, on a cost-reimbursement basis.
Why the other options are wrong
- A. The General Fund accounts for general governmental operating activities, not for proprietary services provided to other departments.
- B. Enterprise Funds account for operations financed and operated in a manner similar to private business enterprises, typically for services to the general public with user charges.
- C. Special Revenue Funds account for specific revenue sources legally restricted to expenditures for specified purposes, not for interdepartmental services.
Internal Service Fund
A 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 same governmental unit, or to other governmental units, on a cost-reimbursement basis.
- Proprietary fund (uses full accrual accounting).
- Charges other departments for services.
- Goal is often to recover costs, not generate profit.
Memory trick: Internal Service: serving within, like a company's HR.