Which Of The Following Is A Difference Between Enterprise Funds And Internal Service Funds?

3.1 Accounting

three.1 Accounting Principles and Internal Controls

iii.1.1 Fund Types and Accounting Principles

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3.ane.1.20 Accounting and reporting capabilities

3.i.one.30 Fund accounting systems

3.1.one.40 Types of funds

Governmental funds

Code 000 - General (Electric current Expense) Fund

Code 100 - Special Revenue Funds

Code 200 - Debt Services Funds

Code 300 - Capital letter Projects Funds

Code 700 - Permanent Funds

Proprietary funds

Code 400 - Enterprise Funds

Code 500 - Internal Service Funds

Fiduciary funds

Code 600 - Fiduciary Funds

Codes 600-609 - Investment Trust Funds

Codes 610-619 - Pension (and Other Employee Benefit) Trust Funds

Codes 620-629 - Individual-Purpose Trust Funds

Codes 630-698 - Custodial Funds

Code 699 - External Investment Pool Fund

3.i.i.l Number of funds

three.ane.1.60 Reporting majuscule assets

three.1.1.90 Reporting long-term liabilities

3.1.1.100 Regime-broad financial statements

3.i.ane.110 Fund financial statements

3.one.one.120 Budgeting, budgetary control and budgetary reporting

3.ane.1.130 Transfer, revenue, expenditure and expense classifications

3.1.i.140 Common terminology and classifications

3.one.1.150 Almanac financial reports

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3.i.1.10 The following principles of bookkeeping and financial reporting are based on those set forth in the Governmental Accounting Standards Lath'due south (GASB) Codified of Governmental Accounting and Financial Reporting Standards. The BARS transmission permits accounting and financial reporting that conforms to these principles in all respects and requires GAAP municipalities to account and study in conformity with these principles, except that the annual study required is not every bit extensive as the Annual Comprehensive Financial Written report (ACFR).

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3.1.1.20 Accounting and reporting capabilities

A governmental accounting system must get in possible both: (a) to present fairly and with full disclosure the funds and activities at the government in conformity with mostly accustomed accounting principles; and (b) to determine and demonstrate compliance with finance-related legal and contractual provisions.

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iii.1.one.30 Fund accounting systems

A governmental accounting organisation should be organized and operated on a fund basis. A fund is divers as a fiscal and accounting entity with a self-balancing ready of accounts recording greenbacks and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations. Fund financial statements should be used to study detailed information about master authorities, including its composite component units. The focus of governmental and proprietary fund financial statements is on major funds.

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three.ane.1.40 Types of funds

In fund financial statements, governments should written report governmental, proprietary, and fiduciary funds to the extent that they have activities that run across the criteria for using these funds.

Presented below is a system to classify all funds used by local government and the assignment of code numbers to identify each blazon of fund. A three digit code is used: the starting time digit identifies the fund type and the side by side 2 digits will be assigned by the governmental unit to identify each specific fund.

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Governmental funds

Lawmaking 000 - General (Current Expense) Fund – should be used to account for and report all fiscal resources not deemed for and reported in another fund.

Although a local government has to report only i general fund in its external financial reports, the regime tin accept multiple full general subfunds for its internal managerial purposes. These managerial subfunds have to exist combined into ane general fund for external financial reporting.

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Code 100 - Special Revenue Funds – should exist used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specific purposes other than debt service or capital projects. Restricted revenues are resource externally restricted past creditors, grantors, contributors or laws or regulations of other governments or restricted by constabulary through constitutional provisions or enabling legislation (like to restricted component of internet position used in government-wide reporting). Committed revenues are resources with limitations imposed by the highest level of the government, and where the limitations tin exist removed only by a like action of the aforementioned governing body. Revenues do non include other financing sources (long-term debt, transfers, etc.).

The term proceeds of specific revenue sources establishes that ane or more specific restricted or committed revenues should be foundation for a special revenue fund. They should exist expected to proceed to comprise a substantial portion of the inflows reported in the fund. While GASB Statement 54 has not provided a numeric range for substantial portion of inflows, it was recommended that at least twenty percent is a reasonable limit for reporting a special revenue fund. Local governments need to consider factors such as past resource history, future resource expectations and unusual current yr inflows such as debt proceeds in their assay.

They may use the calculation below to determine whether an activity would authorize for reporting every bit a special revenue fund.

Other resources (investment earnings and transfers from other funds, etc.) also may be reported in the fund if these resources are restricted, committed, or assigned to the specific purpose of the fund.

Governments should discontinue reporting a special revenue fund, and instead report the fund's remaining resource in the full general fund, if the regime no longer expects that a substantial portion of the inflows will derive from restricted or committed acquirement sources.

The Statement requires all revenue to be recognized in the special acquirement fund. If the resource are initially received in another fund, such equally the general fund, and after remitted to a special revenue fund, they should not be recognized as revenue in the fund initially receiving them. They should be recognized as revenue in the special acquirement fund from which they will be expended. So, the local governments tin either receive resources directly into the special revenue fund, or account for the resources as agency deposits in the receiving fund and, afterward remitting them, recognize them as revenue to the special revenue fund.

Special revenue funds should not be used to business relationship for resources held in trust for individuals, private organizations, or other governments.

The general fund of a composite component unit of measurement should be reported as a special revenue fund.

The state statutes contain many requirements for special funds to account for unlike activities. The legally required funds do not always encounter GAAP standards for external reporting. Then, while the local governments are required to follow their legal requirements, they volition have to make some adjustment to their fund structure for external fiscal reporting.

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Lawmaking 200 - Debt Service Funds – should exist used to business relationship for and written report fiscal resource that are restricted, committed, or assigned to expenditure for main and interest. Debt service funds should exist used to report resource if legally mandated. Fiscal resources that are beingness accumulated for principal and interest maturing in futurity years also should exist reported in debt service funds. The debt service transactions for a special assessment for which the government is not obligated in any thing should be reported in an agency fund. Also, if the regime is authorized, or required to establish and maintain a special assessment bond reserve, guaranty, or sinking fund, GASB Statement half dozen requires using a debt service fund for this purpose.

Annotation: Debt service funds should not be used in proprietary funds (400 and 500). Use enterprise funds (400) or internal service (500) for debt payments related to utilities and other business type activities.

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Code 300 - Capital Projects Funds – should be used to account for and study financial resources that are restricted, committed, or assigned to expenditure for capital outlays including the acquisition or construction of upper-case letter facilities or other upper-case letter assets. Uppercase outlays financed from general obligation bond proceeds should exist accounted for through a upper-case letter projects fund. Upper-case letter project funds exclude those types of capital-related outflows financed by proprietary funds or for assets that will be held in trust for individuals, individual organizations, or other governments (private-purpose trust funds).

Note: Capital project funds should non be used in proprietary funds (400 and 500). Use enterprise funds (400) or internal service (500) for capital payments related to utilities and other business organization type activities.

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Code 700 - Permanent Funds – should be used to account for and report resource that are restricted to the extent that only earnings, and not principal, may exist used for purposes that support the reporting government's programs – that is for the benefit of the government or its citizens (public-purpose). Permanent funds do not include private-purpose trust funds which account for resources held in trust for individuals, private organizations, or other governments.

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Proprietary funds

Lawmaking 400 - Enterprise Funds - may exist used to report any activity for which a fee is charged to external users for goods or services. Enterprise funds are required for any activeness whose master revenue sources encounter any of the following criteria:

• Debt backed solely by a pledge of the net revenues from fees and charges.
• Legal requirement to recover cost. An enterprise fund is required to exist used if the cost of providing services for an activity including capital costs (such equally depreciation or debt service) must exist legally recovered through fees or charges.
• Policy decision to recover price. It is necessary to use an enterprise fund if the government's policy is to establish activeness fees or charges designed to recover the cost, including uppercase costs (such as depreciation or debt service).

These criteria should exist applied in the context of the activity'southward main revenue source.

The term activeness generally refers to programs and services. This term is not synonymous with fund. Every bit a practical consequence, if an activity reported equally a separate fund meets any of the three criteria, it should be an enterprise fund. Also, if a "multiple action" fund (e.g., general fund) includes a meaning activity whose chief revenue source meets any of these 3 criteria, the activity should be reclassified equally an enterprise fund.

The determination of an action'southward principal revenue source is a matter of professional person judgement. A good indicator of the activity'south significance may be comparing pledged revenues or fees and charges to total revenue. For example, consider a county auditor'southward function that charges fees to provide a payroll service to diverse taxing districts. Even if the fee is meant to cover the cost of the service, the county auditor function as a whole is primarily supported with tax dollars from the general fund. It would be allowable in this case to get out the activity all within general fund.

Finding an appropriate fund blazon requires a careful assay since there is not always a clear selection. For example, edifice allow fees may exist accounted for in the general fund or a special acquirement fund in certain circumstances, such as when they are partially supported by taxes. However, if in that location is a pricing policy to recover the cost of issuing those individual building permits, they should be reported in an enterprise fund.

In addition, GAAP mandate the use of enterprise funds for the separately issued fiscal statement of public-entity hazard pools. Public-entity risk pools also are accounted for as enterprise funds when they are included within a sponsoring government's study, provided the sponsor is not the predominant participant in the arrangement. Otherwise, they can apply the full general fund.

Separate funds should not exist reported for bail redemption, construction, reserves, or deposits, for any utility that is accounted for on the total accrual ground, using either the Bars accounts or a nationally recognized utility chart of accounts such as FERC or NARUC. Separate funds should not be reported even though bond covenants may stipulate a bond reserve fund, bond construction fund, etc. The bond covenant use of the term fund is not the same as the use in governmental accounting. For bond covenants, fund means only a segregation or carve up account, not a cocky-balancing set of accounts. (Run across account 150 in the full general ledger chart of accounts.)

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Code 500 - Internal Service Funds – may exist used to report any activity that provides goods or services to other funds, departments or agencies of the authorities, or to other governments, on a cost-reimbursement basis. Internal service funds should be used merely if the reporting government is the predominant participant in the activity. Otherwise, the activity should be reported in an enterprise fund. For more information on bookkeeping for these funds run into 3.nine.6 and for reporting run into 4.3.six.

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Fiduciary funds

Code 600 - Fiduciary Funds – should be used to account for avails, including capital assets (GASB 34, Paragraph 106), held past a authorities in a trustee capacity or as a custodian for individuals, individual organizations, other governmental units, and/or other funds. These include (a) investment trust funds, (b) pension (and other employee benefit) trust funds, (c) individual-purpose trust funds, and (d) custodial funds.

For more information on determining if a transaction is fiduciary please see the Determining Fiduciary Custodial Activities page.

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Codes 600-609 - Investment Trust Funds – should be used to report fiduciary activities from the external portion of investment pools and individual investment accounts that are held in a trust that meets the post-obit criteria: the avails are (a) administered through a trust in which the government itself is non a beneficiary, (b) dedicated to providing benefits to recipients in accordance with the benefit terms, and (c) legally protected from the creditors of the authorities.

In addition to the trust criteria requirements above, all individual investment accounts are required to be reported in an Investment Trust Fund.

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Codes 610-619 - Alimony (and Other Employee Benefit) Trust Funds – should be used to report fiduciary activities for the following:

• Pension plans and OPEB plans that are administered through trusts that meet the criteria in paragraphs three of GASB Statement 67 or paragraph 3 of GASB Statement 74, respectively.
• Other employee benefit plans for which (1) resources are held in trust that meets the following criteria: the assets are (a) administered through a trust in which the government itself is not a beneficiary, (b) defended to providing benefits to recipients in accordance with the do good terms, and (c) legally protected from the creditors of the authorities and (two) contributions to the trust and earnings on these contributions are irrevocable.

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Codes 620-629 - Individual-Purpose Trust Funds – should be used to report all fiduciary activities that (a) are non required to exist reported in alimony (and other employee do good) trust funds or investment trust funds, and (b) are held in a trust that meets the following criteria: the assets are (a) administered through a trust in which the government itself is not a casher, (b) dedicated to providing benefits to recipients in accord with the do good terms, and (c) legally protected from the creditors of the authorities.

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Code 630-698 - Custodial Funds – should exist used to study all fiduciary activities that are not required to be reported in alimony (and other employee do good) trust funds, investment trust funds or private purpose trust funds. The external portion of the investment pools that are not held in trust that meets criteria listed higher up should exist reported in a separate external investment pool fund column under the custodial funds classification.

Note: The custodial funds are required to be used by business-type activities and enterprise funds, except when the resources volition normally be held for less than 90 (90) days.

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Code 699 - External Investment Pool Fund – The external portion of the investment pools that are not held in trust and run into criteria listed above. Although this is considered a custodial fund, information technology should be reported in a separate external investment pool fund column nether the custodial funds classification.

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three.1.1.fifty Number of funds

Governments should establish and maintain those funds required by law and audio financial administration. Only the minimum number of funds consistent with legal and operating requirements should be established. Using numerous funds results in inflexibility, undue complexity and inefficient financial administration.

Local governments should periodically undertake a comprehensive evaluation of their fund construction to ensure that private funds that became superfluous are eliminated from bookkeeping and reporting.

Elected officials should exist educated to the fact that accountability may be achieved effectively and efficiently past judicious utilize of section, plan and other available account coding or cautious use of managerial (internal) funds.

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3.i.1.60 Reporting capital letter assets

A articulate distinction should exist made betwixt general capital assets and uppercase avails of proprietary and fiduciary funds. Capital avails of proprietary funds should be reported in both the government-wide and fund financial statements. Capital avails of fiduciary funds should exist reported but in the statement of fiduciary net position. All other majuscule assets of the government are general capital letter assets. They should non be reported as assets in governmental funds but should exist reported in the governmental activities column in the government-wide statement of internet position. The Capital Assets (BARS iii.3.9, 3.3.10 and 3.3.eleven) sections of the BARS manual provide additional information regarding accounting and reporting of capital letter assets.

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3.1.1.90 Reporting long-term liabilities

A clear distinction should exist made between fund long-term liabilities and full general long-term liabilities. Long-term liabilities directly related to and expected to exist paid from proprietary funds should be reported in the proprietary fund statement of net position and in the government-wide statement of net position. Long-term liabilities direct related to and expected to exist paid from fiduciary funds should be reported in the statement of fiduciary net position. All other unmatured general long-term liabilities of the governmental unit should not exist reported in governmental funds but should be reported in the governmental activities column in the regime-broad statement of net position.

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Measurement focus and footing of accounting in the basic fiscal statements

3.1.1.100 Regime-wide financial statements

The regime-broad statement of net position and statement of activities should exist prepared using the economic resource measurement focus and the accrual footing of accounting. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and commutation-like transactions should be recognized when the substitution takes identify. Revenues, expenses, assets, and liabilities resulting from nonexchange transactions should exist recognized in accord with the GASB Statements 24 and 33.

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3.one.1.110 Fund financial statements

In fund financial statements, the modified accrual or accrual basis of bookkeeping, equally appropriate, should be used in measuring financial position and operating results.

a. Fiscal statements for governmental funds should exist presented using the current fiscal resources measurement focus and the modified accrual ground of accounting. Revenues should be recognized in the accounting menstruum in which they go bachelor and measurable. Expenditures should be recognized in the bookkeeping catamenia in which the fund liability is incurred, if measurable, except for unmatured interest on general long-term liabilities, which should be recognized when due.

b. Proprietary fund statements of net position and revenues, expenses, and changes in fund net position should be presented using the economic resources measurement focus and the accrual footing of accounting.

c. Financial statements of fiduciary funds should be reported using the economic resource measurement focus and the accrual basis of accounting, except for the recognition of sure liabilities of defined benefit pension plans and certain postemployment healthcare plans.

d. Transfers should be reported in the accounting period in which the interfund receivable and payable arise.

Note: The diverse fund types may exist grouped in the following manner to more clearly portray their relationship to an bookkeeping basis:

Menstruation of Electric current Fiscal Resources Measurement Focus Funds – use the modified accrual basis:

000	Full general (Electric current Expense) Fund
100	Special Revenue Funds
200	Debt Service Funds
300	Capital Projects Funds
700	Permanent Funds

Flow of Economic Resources Measurement Focus Funds – utilise total-accrual ground:

400	Enterprise Funds
500	Internal Service Funds
600-609	Investment Trust Funds
610-619	Pension (and Other Employee Benefit) Trust Funds
620-629	Individual-Purpose Trust Funds
630-698	Custodial Funds
699	External Investment Pool Fund

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3.1.1.120 Budgeting, budgetary control and monetary reporting

a. An annual/biennial budget should be adopted past every authorities.

b. The bookkeeping system should provide the basis for advisable budgetary command.

c. Budgetary comparison schedules should be presented equally required supplementary information for the full general fund and for each major special acquirement fund that has a legally adopted annual/biennial budget. The monetary comparing schedule should nowadays both (a) the original and (b) the terminal appropriated budgets for the reporting period advertising well as (c) actual inflows, outflows, and balances, stated on the government's budgetary basis.

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3.i.1.130 Transfer, revenue, expenditures and expense account classifications

a. Transfers should exist classified separately from revenues and expenditures or expenses in the basic fiscal statements.

b. Proceeds of general long-term debt issues should be classified separately from revenues and expenditures in the governmental fund fiscal statements.

c. Governmental fund revenues should be classified by fund and source. Expenditures should exist classified by fund, part (or programme), organization unit of measurement, activity, graphic symbol, and principal classes of objects.

d. Proprietary fund revenues should exist reported by major sources, and expenses should be classified in substantially the same way as those of similar business organizations, functions, or activities.

due east. At a minimum, the statement of activities should nowadays:

(one) Activities accounted for in governmental funds by office, to coincide with the level of item required in the governmental fund argument of revenues, expenditures, and changes in fund balances.

(2) Activities accounted for in enterprise funds by different identifiable activities.

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iii.1.i.140 Mutual terminology and classification

A mutual terminology and classification should be used consistently throughout the upkeep, the accounts, and the fiscal reports of each fund.

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3.one.1.150 Annual fiscal reports

a. General purpose external financial reports should exist prepared and published. Governments engaged in governmental and business-blazon activities should include, at a minimum:

(1)  Management'south discussion and analysis (Doc&A).

(2)  Bones fiscal statements.  The bones fiscal statements should include:

(a) Government-wide financial statements.
(b) Fund financial statements.
(c) Notes to the financial statements.

(3)   Required supplementary information (RSI) other than Physician&A.

Governments engaged but in business-type activities should present only the financial statements required for proprietary funds.  They should include:

(ane) Management'southward discussion and assay (MD&A)

(ii) Proprietary fund financial statements consisting of:

(a) Statement of internet position
(b) Statement of revenues, expenses, and changes in fund net position
(c) Statement of greenbacks flows

(iii) Notes to the fiscal statements

(4) Required supplementary data (RSI) other than MD&A, if applicable.

b. The statements and reports listed to a higher place follow national standards  of financial reporting. They should not be confused with legal reporting requirements , which are prescribed by the Land Auditor's Part for all local governments in Washington State. The legal requirements are consistent with these national standards, but they are not identical. Specific legal reporting requirements are contained in reporting role of this Manual.

c. An ACFR may exist prepared and published, covering all activities of the primary government (including its blended component units) and providing an overview of all discretely presented component units of the reporting entity including introductory department, management's discussion and analysis (Physician&A), basic fiscal statements, required supplementary data other than MD&A, combining and individual fund statements, schedules, narrative explanations, and statistical section. The reporting entity is the primary regime (including its blended component units) and all discretely presented component units.

d. The fiscal reporting entity consists of (1) the main government, (2) organizations for which the primary regime is financially accountable, and (three) other organizations for which the nature and significance of their relationship with the main authorities are such that exclusion would cause the reporting entity' basic fiscal statements to be misleading or incomplete. The reporting entity'south regime-broad financial statements should brandish data nigh the reporting regime every bit a whole distinguishing between the total master government and its discretely presented component units as well as between the master government'southward governmental and business organisation-type activities. The reporting entity's fund financial statements should present the primary government's (including its composite component units, which are, in substance, office of the main regime) major funds individually and nonmajor funds in the amass. Funds and component units that are fiduciary in nature should be reported only in the statements of fiduciary cyberspace position and changes in fiduciary net position.

eastward. The nucleus of a financial reporting entity normally is a primary government. Notwithstanding, a governmental organisation other than a primary government (such as a component unit, articulation venture, jointly governed system, or other stand-solitary authorities) serves as the nucleus for its ain reporting entity when it issues separate financial statements. For all of these entities, the provisions the GASB Argument 14 should be applied in layersfrom the lesser upwardly. At each layer, the definition and display provisions should exist practical earlier the layer is included in the fiscal statements of the side by side level of the reporting regime.

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This department was concluding edited by SAO on 01/06/22

Source: https://sao.wa.gov/bars_gaap/accounting/accounting-principles-and-internal-control/fund-types-and-accounting-principles/

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