Professional Documents
Culture Documents
Contents
7.0 Aims and Objectives
7.1 Introduction
7.2 Internal Service Funds
7.2.1 Establishment and Operations
7.2.2 Accounting Issues and Procedures
7.2.3 Dissolution of an Internal Service Fund
7.2.4 Illustrative Case
7.3 Enterprise Funds
7.3.1 Accounting and Related Issues
7.3.2 Assets
7.3.3 Liabilities
7.3.4 Customer Deposits
7.3.5 Fund Equity
7.3.6 Illustrative Case
7.4 Summary
7.5 Answers to Check your Progress Questions
This unit aims at explaining the two different type of funds under the proprietary funds
category i.e The Internal Service Fund and the Enterprise Funds. After going through this
unit, you will be able to:
1. understand The Establishment and operations of the Two Proprietary Funds
2. describe, compare and contrast the two funds with other Type of funds
3. explain how the financial activities are accounted for in this funds in the same
manner with that of a commercial entity
4. explain the accounting treatments and other related issues of both funds
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7.1 INTRODUCTION
All of the funds discussed in the previous chapters (GF, SRF, CPF, DSF) owe their
existence to legal constraints placed on the raising of revenue and/or the use of resources
for the provision of services to the public or segments thereof, and for the acquisition of
facilities to aid in provision of services. It become apparent that efficiency should be
improved if services used and given by several governmental units were combined in a
single administrative unit. Internal Service Fund (ISF) and Enterprise Fund (EF) are both
classified by the GASB as Proprietary funds. Internal service funds, as indicated on the
principles of governmental accounting, are used to account for services provided by one
department or Agency of a governmental unit to other department or agencies, or to
other governmental units on a user charge basis. Enterprise Funds are used by
governmental units to account for services provided to the general public on a user
charge basis. Enterprise Funds may also be used to account for any operations “where the
governing body has decided that periodic determination of revenues earned, expenses
incurred and/or net income is appropriate for capital maintenance, public policy,
Management Control, Accountability or other purposes. Proprietary funds are accounted
for in the same manner to investor owned Business Enterprise. Accordingly such funds
recognize revenues and expenses (not Expenditures on the accrual basis. they account for
all fixed assets used in their operations and for long term debt to be serviced from
revenues generated from their operations as well as for all current assets and current
liabilities. the equity account of proprietary funds are composed of
1. Contributed equity
2. Retained Earnings
Proprietary funds differ from Governmental funds in that they are not required by GASB
standard to record the budget in their accounting system, which is treated as a managerial
control device rather than a legislative control tool.
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each of these separate operations in a manner that changes the total cost of an operation to
the various user departments. ISF (sometimes called Intergovernmental Service Funds,
Working Capital Funds and Revolving Funds) arose to meet the need to offer services
within the entity in a more reliable or/and less expensive manner than obtaining the same
service outside. This is due the fact that governmental units are becoming complex and
also efficiency is improved if services used by several departments or funds or even
several governmental units were combined in a single administrative unit like control
purchasing department, common Garage, Prining service and Data Processing Service. a
logical name for a fiscal and accounting entity created to account for resources used for
providing centralized services is ISF. Traditionally, the reason for the creation of funds in
this category was to improve the management of resources. In recent years large numbers
of governmental units have experienced a shortfall of revenues with an increase in the
demand for governmental services. Consequently, many governmental units have turned
to user charges as a means of financing operations formerly financed by Tax Revenues
and intergovernmental Revenues. In order to determine whether user charges are
commensurate with operating costs, and to improve the ability of administrators and
governing bodies to determine that costs are reasonable in relation to benefits. It is
desirable for the activities to be operated and accounted for on a business basis. Thus
many activities formerly operated on a purely non commercial basis and accounted for by
governmental funds are now accounted for by proprietary funds, ISF & EF. As discussed
earlier in the introduction, Activities that produce goods or services to be provided to
department or agencies of a governmental unit or to other governmental units, on a cost
reimbursement basis are accounted for by ISF.
The phrase cost- reimbursement basis is to be interpreted broadly. User charges need not
cover the full cost of providing the goods or services; transfers from other funds or units
to subsidize in part the operations of an ISF do not negate the use of this fund type. Being
a proprietary fund, ISF is accounted for in the same manner like an investor owned
business enterprise. Accordingly as mentioned earlier, it recognizes Revenues and
Expenses (not expenditures) on the accrual basis. it accounts for all fixed assets used in
its operations. And for long term debt to be serviced from revenues generated from its
operations as well as for all current assets and current liabilities. It has got two equity
accounts; Equity contributed to the fund and, retained earnings resulting from the
operations of the fund.
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7.2.1 Establishment and Operations
ISF arose to meet the need to offer services within the entity. ISFs are established to meet
some need within the entity, if it is believed that the entity can provide the service to itself
in a more reliable and/or less expensive manner than obtaining the same service outside.
Although the reason for establishment of an ISF is to improve financial management of
scarce resources, it should be stressed that a fund is a fiscal entity as well as an accounting
entity; consequently establishment of a fund is subject to legislative approval. The
ordinance, or other legislative action, that authorizes the establishment of an ISF should
also specify the source or sources of financial resources to be used for fund operations. the
original allocation of resources to the fund may be derived from a transfer of assets of an
other fund, such as The GF or an EF, intended as contribution not to be repaid, or a
transfer in the nature of a long term advance to be repaid by the Internal service fund over
a period of years. Alternatively, or additionally the resources initially allocated to an
internal service fund may be acquired from the proceeds from the proceeds of tax
supported bond issue or transfer from other governmental units that anticipate utilizing
the services to be rendered by the ISF. Since the ISFs are established to improve the
management of resources, it is generally considered that they should be operated and
accounted for on a business basis. Application of this general truth to a specific case can
lead to a conflict between managers who wish the freedom to operate the fund in accord
with their professional judgement, and legislators who wish to exercise considerable
control over the decisions of ISF managers.
Operation of an ISF-
ISF- Generally the cost of an ISF should be less than the cost of
purchasing the same service from an external provider. in some cases the use of an ISF
with higher cost can be justified if it is thought that external service providers are
unreliable. External conditions change constantly and the cost of an ISF tends to increase
from time to time good cost information from the accounting system allows management
to regularly review the ISF in comparison to External providers. Some times subsidy
might be given to the ISF by other funds so as to make the services of ISF cheaper, under
this case, a below cost charge should be made by the ISF to other funds so that those other
funds receive the service at a discount and thereby be able to operate their own funds at a
surplus.
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The major challenge in operating in ISF is the determination of the cost of service, which
is to be charged to the user departments. Basically the pricing of the service to the other
departments is very important in the ISF. In a profit seeking business, the main
determinant of price is “what the market will bear”. However an ISF serves as a ”captive”
market and since it is ultimately meant to save money for the entity as a whole. Pricing
should be done according to the cost of providing the service. The price charged to the
user departments should be high enough to cover all the cost of the ISF, while being less
expensive than purchasing outside.
Financial Statements- it is far more like that of a profit business than that of an
expendable fund. It is of a classified Balance Sheet type i.e Current Assets are segregated
from Fixed Assets and other assets and Current Liabilities are segregated from Long Term
Debt. The most significant difference from an expendable fund is that Long term Debt and
Assets appear on the statement. The main difference from that of a profit business is the
Contributed Equity shown in the equity section.
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ISF operating Statement shows change in retained earnings and contributed equity rather
than change in fund balance. ISFs do not have Bund Balance rather than they have
retained earnings like for a profit business. The Contributed equity would have risen from
a residual Equity transfer from another fund probably the GF. The other difference from a
profit income Statement is that changes in equity are shown of the face of the operating
statement of an ISF (like that of a Governmental Fund)
Statement of Cash Flows- GASB requires the preparation of the cash flows in the
FS for all Proprietary funds and non-expendable trust funds. The standard provides four
categories of Cash Flows.
a) Cash Flow from operating activities- includes receipts from customers, receipts from
quasi-external operating transactions with other funds, payments to suppliers of goods or
services, payment to employees, payment of Quasi-External transactions with other funds
(including payment in lieu of Taxes) and other operating cash receipts and payments.
b) Cash flow from non capital financing activities- includes proceeds from debt not
clearly attributable to acquisition, construction of improvement of Capital assets, , receipts
from grants, subsidies or taxes other than those specifically restricted for Capital
Purposes, or those for specific operating activities, payment of interest on and repayment
of principal of non capital financing debt, grants and Subsidies paid to other governmental
funds or organization except payment for specific operating activities of the grantor
government.
c) Cash Flow from Capital and related Financing activities- includes proceeds of debt and
receipt from special assessments and taxes specifically attributable to acquisition,
construction or improvement of Capital Assets, Receipts from Capital grants, receipts
from the sale of capital assets, proceeds of insurance on Capital assets that are stolen or
destroyed, payment of interest and/or repayment of refunding of capital and related
financing debt.
d) Cash Flows from investing activities- includes receipt from collection of loan, interest
and dividends received on loans, debt instruments of other entities, Equity securities and
cash management and investment pools, receipt from the sale of debt on equity
instrument, withdrawals from investment pools not used as demand accounts,
disbursement for loans, payments to acquire debt on equity instruments and deposits into
investment pools not used as demand accounts.
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7.2.3 Dissolution of an ISF
When an ISF has completed the mission for which it was established, or when its activity
is terminated for any other reason, dissolution must be accomplished. Liquidation must be
accomplished in any one of the three ways or in combinations thereof. The three ways are:
1. Transfer of the fund assets to an other fund that will continue the operation as
a subsidiary activity. Eg a supply fund becoming a Dept. of the GF
2. Distribution of the funds assets in kind to another fund or to another governmental
unit;
3. Conversion of all its noncash assets to cash and distribution of the cash to another
fund or other funds.
1. The town’s General Fund transferred to the new Supplies Fund a cash of 25,000 and its
Inventory of supplies of 61,500 to be used for working capital and which are not to be
repaid.
Cash 25,000
Inventory of Supplies 61,500
Equity Transfer In 86,500
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Exp- Transfer of this nature are initially are accounted for by the recipient fund as Equity
transfer in as shown in entry 1. The equity transfer in account is closed at the end of the
fiscal period to an appropriately named fund Equity account- Contribution from the
General Fund, in this case and reported in the changes in fund equity section of the
operating statement.
Cash 100,000
Advances from wate Utility Fund 100,000
Land 10,000
Building 60,000
Machinery & Equipment- warehouse 20,000
Equipment- Delivery 10,000
Cash 100,000
Exp- If the purchases are made for cash, the acquisition of the assets would be recorded in
the books of the supplies fund in such manner
4. Supplies are acquired at cost of 179,800 and the invoices are approved for payment.
Exp- encumbrances need not be recorded for purchase orders if issued and so information
about the value of purchase orders if any is omitted from being recorded.
5. The Supplies fund issued supplies that cost 170,000 to the GF. (A mark up of 35% on
the cost of the supplies that it purchases will be sufficient to cover its after cost. assume
Perpetual Inventory system)
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Inventory of Supplies 170,000
Cash 213,000
Due from General fund 213,000
7. Payrolls and fringe benefits during the year were all paid in cash and were distributed
as follows in afunctional Expense account:
Administration = 10,000 Purchasing = 18,000
Warehouse = 11,000 Delivery = 12,000
9. The Advance from the Water Utility Fund, first repayment has been made
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Advance from Water Utility Fund 5,000
Cash 5,000
-- 10% = 300
=> 60,000 = 3,000 -- 10% = 300
20 yrs -- 80% = 2,400
20,000 = 2,000
10 yrs
10,000 = 2,000
5 yrs
* Organizations that keep perpetual Inventory records must adjust the records
periodically to reflect shortages, overages or out of condition stock disclosed by fiscal
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Inventories. Adjustment to the inventory account are also considered adjustment to the
warehousing expenses of the period.
11. The operating Statement of Accounts are closed as of December 31, Year 2.
Exp- “Excess of net billings to departments over cost” (or “Excess of Cost over Net
Billings to Departments,” if operations resulted in a loss) is the account title generally
considered more descriptive of the Fund’s result than “Income Summary” or “Current
Earnings” - the titles commonly found in profit seeking business. Whatever title is used
for the account summarizing the results of operations for the period, the account should be
closed at year-end. The title of the account that records earnings retained in an ISF is the
same as the title commonly used in a profit seeking business: Retained Earnings.
Current Asset
Cash 25,000
Due from GF 16,500
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Inventory of Supplies at average cost 71,300
Total Current Asset 112,800
Fixed Asset
Land 10,000
Building 60,000
Less:
Less: Accumulated Depreciation 3,000 57,000
Machinery & Equipment - Warehouse 20,000
Less: Accumulated Depreciation 2,000 18,000
Equipment - Delivery 10,000
Less:
Less: Accumulated Depreciation 2,000 8,000
Total Fixed Assets 93,000
Total Assets 205,800
Current Liabilities:
Vouchers Payable 22,800
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Less: Purchasing Expenses ------------------------- 18,300
Administrative Expenses --------------------- 10,300
Warehousing Expenses ----------------------- 15,400
Delivery Expenses ---------------------------- 14,000
Total Operating Expenses -------------------------- 58,000
Excess of Net Billings to-
Departments over Cost for the year------------------ 1,500
Retained Earnings, January, year 2------------------- 0
Retained Earnings, December 31, year 2 ------------ 1,500
Equity Transfer In from General Fund --------------- 86,500
Contributed Equity, January 1, Year 2 --------------- 0
Contributed Equity, December 31, year 2 ------------ 86,500
Town of X Supplies Fund
Statement of Cash Flows
For the Year ended December 31, Year 2
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Reconciliation of Excess of net Billings
To Department over Costs to Net Cash
provided by Operating activities
Enterprise Funds like internal service Funds are proprietary Funds. The fundamental
difference between the two funds is that while ISF provide service within the
governmental entity, enterprise funds provide services to the General Public. EF provide
service on a user- pays basis. Efs provide services that are either should not be, cannot be,
or otherwise are not provided by for profit entities. The difference between Efs and
Governmental Funds is that, Governmental funds typically provide service to the citizens
as needed (eg. the police) regardless of the citizens ability to pay, while Efs provide
services on the basis that the user of the service pay at least part of the cost.
The most common example of EF are public utilities, notably Water and Sewer Utilities.
Electric and Gas Utilities, Transportation system, Airports, Ports, Hospitals, Toll Bridges,
Produce Markets, Parking Lots, Parking Garages, Liquor Stores and Public Housing
projects are examples which may also be accounted for in EF. services of the kinds
mentioned are generally accounted for by EF because they are intended to be largely self
supporting. However, they are properly accounted for by aGF or SRF by those
governments that support the activities largely from general or special revenue sources
other than user charges and are not concerned with measuring the cost of the activities.
Similar to business regular budgets are extremely useful in Efs for the sake of good
management. Normally this budgets are not formally entered in the ledger as budgetary
accounts. (Note that budgetary accounts are sometimes required by law). One key
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difference between EF and business is that, an enterprise fund may be partly subsidized by
transfers from other governmental Funds. Therefore, it will want to account for Earnings
from Operations separately from Transfers from Other Governmental Entities.
Original cost is regulatory concept that differs from historical cost. A concept commonly
used in accounting for assets of non-regulated business. In essence historical cost is the
amount paid for an asset by its present owner. In contrast, original cost is the cost to the
owner who first devoted the property to public service.
Since a governmental entity can’t really charge taxes to itself, it may have it’s EF pay
some agreed Contribution in lieu of Taxes to the governmental entity. This would be
considered as an operating expense for the EF, and Revenue for the receiving fund. (It is
not an Interfund Transfer). Efs may use functional division of Expenses. In other words,
Expenses are classified by what you get, rather than what you spent. Eg. The following
expense categories may be used for Water Supply Enterprise Fund: Source of Supply,
Pumping, Transmission and Distribution (pipes), Administrative etc..., rather than the
natural expense categories such as Salary Expense, Rent Expense, etc...
7.3.2 Assets
Cash and Materials are not peculiar to regulated utilities and need not be discussed.
Utility plant in service is a control account supported in whatever detail is required by
regulatory agencies and by management needs. The other asset accounts Customer
Accounts receivable and accrued utilities revenues- are related. The former represents
billing to customers that are outstanding at year end (and are reduced as one would expect
by an accumulated provision for uncollectables). The latter results from the fact that
utilities generally prepare billings to customers on the basis of meter reading and it is not
practical utilities to read all meters simultaneously at year end and bill all customers as of
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that time. Utilities that meter their service make extensive use of cycle billing, which in
substance consists of billing part of their customers each day, instead of billing by a
calendar months.
In other words, since utilities cant normally read all meters at the end of the month so they
either;
1. Prepare an estimate or normal bill each month, reading the meter every few months
and calculate the exact bill when the meter is read, or
2. They read meters continuously during the month and stagger the bill through the
month (Eg. 21 June to 20 July, or 05 May to 04 June), this is called cycle billing.
Cycle billing eliminates the heavy peak of clerical works that results from uniform billing
on a calendar month basis. It does however result in a sizable amount of unbilled
receivables on any given date thus requiring accrual of unbilled receivables (Accrued
Utilities Revenues, in regulatory terminology) as of financial statement date in order to
state assets and sales properly.
In either case, there often will be large amount of revenue accrue at year-end. For example
if the fiscal year is from January to December and the meter is read on December 2, 29
days usage would need to be estimated and recorded as an accrued income. The accrual
entries should of course, be reversed as the first entry for the new year, in the same way as
for profit accounting.
Construction in progress- is shown as an asset in the books of the EF. (Note that this is
different from CPF). Interest for construction is capitalized-it is not shown as Interest
Expense.
7.3.3 Liabilities
Account payables need no comment here, customer advances for construction, results
from the practice of utilities of requiring customers to advance to the utility a sizable
portion of the estimated cost of construction projects to be undertaken by the utility at the
request of the customer. If the advances are to be refunded either wholly or in part
or applied against billings for services rendered after completion of the project, they are
classified as Customer advances for construction. When a customer is refunded the entire
amount to which he is entitled according to the agreement or rule under which the
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advance was made. The balance if any, is transferred to Contributions from customers, a
fund equity account.
Long term Debt - Regulatory agencies commonly require that long-term debt be shown
in a Utility Balance Sheet before Current Liability. Bonds are the customary for a along
term debt. Bonds issued by a Utility are usually secured by the pledge of certain portions
of the utility’s revenues, the exact term of the pledge varying with individual cases; bonds
of this nature are called Revenue Bonds. Revenue Bonds might be issued to finance
construction of long term Assets. Revenue Bonds are secured by future billings of the
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Utility. Some Utility Bonds are secured not only by a pledge of a certain portion of the
utility’s revenues, but also by an agreement on the part of the town’s or city’s general
Government to subsidize the utility in any year in which its normal Revenue is inadequate
for compliance with the terms of the bond indenture. Other Utility bonds carry the pledge
of the governmental unit’s full faith and credit, although the intent is to service them from
the Utility revenues rather than General Taxes. The latter are technically therefore,
technically General Obligation Bonds.
Bonds. General Obligation bonds (secured by the full
faith and credit of governmental entity) would ordinarily be accounted for in the
GLTDAG, but if they are expected to be serviced by the Revenues of the EF, they will be
carried on the EF books. General Obligation Debt that is carried on the EF books should
also be disclosed by note as a contingent Liability to the GLTDAG. GASB’s standards
provide that General Obligation Bonds intended to be serviced from Utility Revenues be
reported as a liability of the EF.
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Retained earnings- Although it is generally true that governmental units own Utilities in
order to have the capacity to render services to residents, rather than as advice to earn
revenues, it is obviously in the best interest of the tax payers that the Utility be self
supporting. Operating revenues therefore must be set at a level expected to cover
operating expenses, provide for debt service and finance routine capital projects. For these
reasons, it is customary for governmentally owned Utilities to accumulate retained
earnings just as Investor owned Utilities do- although perhaps not to the same extent. A
question might be rise as to what is the appropriate level of Retained earnings for an EF?
Operating Revenues should cover operating expenses, Debt service and routine Capital
Projects. Retained Earnings should not normally accumulate beyond those levels if they
do, the citizens will probably complain that they are being over charged for the service.
On the other hand, if operating revenues do not cover the aforementioned, then a subsidy
will likely be required from the General fund. Such a subsidy would probably prove
politically unpopular. Retained Earnings should therefore be monitored to ensure that it is
neither too large nor too small. the Retained Earnings in an EF may be reserved for a
certain purpose, Eg for future Debt Service. Reservations of Retained Earnings are shown
on the Balance Sheet.
1. On January 1, year 1, billings from the town of X water Utility fund from sales of
water Utility services of the previous fiscal year amounting to 14,800 that accrued has
been recorded.
Sales of water 14,800
Accrued Utility Revenues 14,800
Exp- It is not feasible when customers’ bills are prepared to determine whether the portion
of the bill has been accrued. And if so, how much? The simplest procedure therefore is to
reverse the accrual entry as of the start of the new fiscal year. Assuming that the entire
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December 31, year 0 Town of X water Utility fund revenues accrual has been credited to
sales of water, the above entry should be made.
Cash 680,000
Customer Account Receivable 680,000
4. Materials and supplies in the amount of 138,000 were purchased during the year by
the Water Utility fund.
5. Materials and supplies Chargeable to the accounts itemized below were issued during
the year.
- Source of Supply 18,000 - Transmission & distribution 13,000
- Pumping 21,000 - Construction work in progress 66,000
- Water Treatment 24,000
Source of supply Expenses 18,000
Pumping Expenses 21,000
Water Treatment Expenses 24,000
Transmission and Distribution Expenses 13,000
Construction work in progress 66,000
Materials and Supplies 142,000
6. Payrolls for the year were chargeable to the accounts given below. After deducting
the necessary tax collections, checks have been given to the employees’ net
earnings.
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- Source of Supply 8,200 - Sales 17,250
- Pumping 15,700 - Tax collected 51,750
- Water treatment 17,500 - Taxes Accrued 13,800
- Construction work in progress 30,400 - Customer account 96,550
- Administrative and General 83,150
- Transmission and distribution 76,250
Exp- Tax collections payable is the account provided to report the amount of taxes
collected by the Utility through payroll deductions or otherwise pending transmittal of
such Taxes to the Proper Taxing Authority. Taxes accrued is the account provided to
report the liability for Taxes that are the expenses of the utility, such as the employers
share of social security taxes. In the entry below it is assumed that employers share of
social security Taxes is charged to the same accounts that the employees’ gross earnings
are.
7. Interest on bond in the amount of 105,000 was paid. The bonds were issued to
finance the acquisition of Utility plant asset. Amortization of Debt discount and
Expense amounted to 530.
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8. Bond Interest during the period of construction, net of any interest earned on temporary
investment of bond proceeds, amounted to 12,900; this amount was charged to
construction. (The town of X does not impute interest on its own resources used during
the construction).
9. Construction projects on which costs totalled 220,000 were completed and the assets
placed in the service:
10. Collection efforts were discontinued on bills totalling 3,410. The customers owing the
bills had paid deposits to the water Utility totalling 2,140. The deposits were applied to
the bills and the unpaid remainder was charged to allowance for
uncollectable accounts.
Cash 2,525
Customer Deposits 2,525
12. Customer Advances for Construction in the amount of 14,000 were applied to their
water bills. In accordance with the agreement with the customers, the remainder of the
advances were transferred to contribution from Customers.
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Customer Accounts Receivable 14,000
Contributions from customers 7,000
13. Payments of account payable for materials and supplies used in operations totalled
67,200, and payment of Account Payable for material used in construction totalled
66,000. Payment of taxes accrued amounted to 13,500 and payments of Taxes
Collection Payable amounted to 50,000.
14. The wate Utility fund agreed to pay 25,000 to the town General Fund as a
contribution in lieu of Property Taxes.
15. At year end entries to record Depreciation Expense in the amount of 91,700; The
Amortization of the Plant Acquisition Adjustment in the amount of 11,050; Allowance for
Uncollectable Accounts in the amount of 3,980; and Unbilled Customer Accounts in the
Amount of 15,920 have been made.
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Exp- in accordance with manuals of regulatory authorities, Customer Accounts Expenses,
is debited for the amount added to Accumulated Provision for Uncollectable Amounts.
16. In accordance with the Revenue Bonds Indenture, 100,000 amounts of cash was
transferred to the Special Funds category. The transfer requires an appropriation of
Retained Earnings of an equal amount.
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Utility plant in service, at original cost 3,203,500
Less: Accumulated Depreciation 532,025
Utility Plant- Net 2,671,475
Utility Plant Acquisition Adjustment 331,500
Less: Accumulated Amortization 34,225
Plant Acquisition Adjustment- Net 297,275
Construction Work in Progress 14,300
Net Utility Plant 2 ,983,050
Other Property and Investments:
Special Funds 162,600
Current and Accrued Assets:
Cash 126,055
Customer Accounts Receivable 67,590
Less: Accumulated provision for Uncollectable 5,610 61,980
Accrued Utilities Revenues 15,920
Due from General Fund 5,000
Materials and Supplies 24,700
Total Current and Accrued Assets 233,655
Deferred Debits:
Unamortized Bond Discount and Expense 4,700
Total assets and Other Debits 3,384,075
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Contribution from Town 1,000,000
Contributions from Customers 259,000
Retained Earnings:
Appropriated 162,600
Unappropriated 149,660 312,260
Total Fund Equity 1,571,260
Total Liabilities and Other Credits 3,384,075
_____________________________________________________________________
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Unappropriated Retained Earnings, January 1, Year 1 137,500
Total 249,660
Less:
Less: Appropriations of Retained Earnings 100,000
Unappropriated Retained Earnings, December 31, Year 1 149,660
Appropriated Retained Earnings, January 1 Year 1 62,600
Add:
Add: Appropriated During the Year 100,000
Appropriated Retained Earnings, December 31, Year 1 162,600
_____________________________________________________________________
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Adjustments:
Depreciation Expense 91,700
Amortization of plant Acquisition adjustments 11,050
Increase in Accounts Payable 4,800
Increase in Accrued liabilities 2,050
Decrease in customer Deposits (935)
Decrease in Inventories 4,000
Increase in Interfund Receivables 5,000
Increase in Accrued Receivables (1,120)
Decrease in Customer Accounts Receivable 4,120
Customer advances Applied to Customer-
Receivables (14,000)
Total Adjustments 96,665
Net Cash Provided by Operating Activities 301,455
_____________________________________________________________________
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_____________________________________________________________________
_____________________________________________________________________
5. Describe Customer Deposits in EF and also explain if whether governmentally owned
Utilities pay interest on customer deposit.
______________________________________________________________________
______________________________________________________________________
6. What are the categories of cash flow in a proprietary Fund statement of cash flows
prepared in conformity with GASB standards? What kind of transactions reported in
each category? Compare and Contrast statements prepared by Proprietary Funds with
that of the Governmental Funds.
_____________________________________________________________________
_____________________________________________________________________
7. What are the alternative methods of dissolving an ISF? What factors should be
considered in choosing the appropriate method?
_____________________________________________________________________
_____________________________________________________________________
8. What is the relation between customer advances for Construction and Contribution
from customers?
______________________________________________________________________
______________________________________________________________________
9. Explain the reason for the establishment of an ISF.
______________________________________________________________________
______________________________________________________________________
10. Describe how the original allocation of resources are made during the establishment of
an ISF.
______________________________________________________________________
______________________________________________________________________
7.4 SUMMARY
It has been stressed that each governmentally owned Enterprise should follow the
accounting and financial reporting standard developed for investor-owned enterprises in
the same industry. Generally, the standards developed by FASB and its predecessors, have
been accepted by the GASB as applying to ISFs and EFs. Consequently, many sections in
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this topic which discuss Generally Accepted Accounting Principles (GAAP) applicable ti
ISF (such as Acquisition of assets by Contribution or grants, Depreciation of contributed
assets or assets acquired from Capital grant and assets acquired under lease agreement)
apply equally to Efs accounting for activities whose accounting is not regulated by Federal
or state agencies. There is a trend toward a belief that FASB standard should apply to
General Purpose external financial Reporting of Regulated Utilities also and that the
requirement of regulatory bodies should apply only to the reports submitted to the
regulatory bodies. As of the present time, however, the material presented in the previous
sections of this topic in regard to accounting and financial reporting for governmentally
owned utilities is considered authoritative. Segment information that should be presented
for EFs is that deemed essential to make the General Purpose Financial statement not
misleading. The following types of information are specified
a) Material Intergovernmental Operating Subsidies to an Enterprise Fund
b) Material Intergovernmental Operating Subsidies to or from an Enterprise Fund
c) Material enterprise Fund Tax Revenues.
d) A Material Enterprise Fund Operating Income or Loss.
e) A Material Enterprise Fund Net Income or Loss.
Materiality should be evaluated in terms of the individual Enterprise Fund, not in terms of
the total Enterprise Fund type taken as a whole.
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