Question

Explain the reporting requirements for internal service funds and enterprise funds. internal service funds and enterprise funds are both proprietary funds, so why do their reporting requirements differ?

Answer 1

Answer: Enterprise Fund

An enterprise fund gets used for services the public gets on a person-by-person basis like water and sewage utilities. If your government provides a service to you, the enterprise fund accounts for the debits and credits.

Internal Service Fund

Paying for the costs accumulated by other funds is the internal service fund. They pay for the operational costs of serving other funds. For example, government vehicles, computers, or copiers are assets typically listed in an internal service fund.

Explanation: Their reporting requirements differs because:

-The internal service funds are reported in all of the proprietary fund financial statements in a separate column to the right of the total enterprise funds column. Major fund requirements do not apply to the internal service funds and their information is combined into one column.

- The internal service fund asset and liability balances that are not eliminated should be reported in the governmental activities column (unless the enterprise funds are predominant or only user of its services)

- Even though internal service funds are classified as proprietary funds, the nature of the activity accounted for in them is generally governmental and should normally be reported as governmental activities. The exception to this presentation is when the internal service funds serves predominantly external parties or enterprise funds. Then they should be reported together with the business-type activities.

- In the statement of activities the eliminations are necessary to remove the doubling effect of internal service fund activities. To accomplish that only the residual balances are reported. Internal revenues (except investment income) and expenses (except interest) should be netted. The difference should be charged back entirely or on pro-rata basis to the funds/functions that used services or acquired goods from that internal service fund (e.g., if the internal service fund reports net income, the entire amount should be charged back to the participating funds and would reduce their expenses related to the services and goods purchased from that fund).