Question:
Which of the following would be reflected in the <em>operating statement</em> of a <em>proprietary fund</em>?
A) Purchase of a capital asset
B) Issuance of debt
C) Accrual of interest expense
D) Repayment of the principal of debt
Answer:
The correct answer is C) Accrual of interest expense
Explanation:
An <em>operating statement</em>, also known as a profit and loss statement or an income statement, is a vital financial statement used by all companies. ... This statement shows a company's revenues and expenses and calculates a company's net profit or net loss for a specified period of time.
A proprietary fund is used in preparing the financial records of governmental agencies for activities that involve business-like interactions, either within the government or outside of it.
Proprietary funds are classified into two:
I. enterprise funds and
II internal service funds.
An enterprise fund is used to account for any activity for which external users are charged a fee for goods and services; while
internal service fund is used to account for operations that provide goods or services to other funds, as well as departments or agencies of the primary government, or to other government entities on a cost-reimbursement basis.
Cost reimbursement basis is a basis of paying for a contract on the basis of allowed expenses.
Thus because government agencies or departments may incure operating expenses, interest on same is chargeable and usually is recorded on the debit side of the entry under operating expenses.
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