Fundamentals of Governmental Accounting and Reporting

Chapter 6Proprietary Funds

Learning objectives

• Determine when the use of proprietary funds is allowed and when their use is required.
• Determine how certain transactions are reported in proprietary funds.
• Identify some of the unique reporting practices of proprietary funds.

Back in familiar territory with proprietary funds

Proprietary funds use businesslike accounting. But where is net income? There are some differences in how information is displayed in governmental financial statements. In addition, the GASB has adopted a few accounting standards different from those used in business. This chapter will focus on those areas where GASB guidance differs from normal business practice.

Proprietary funds use a flow of economic resources measurement focus and accrual basis of accounting; they are used to account for a government’s business-type activities and use businesslike accounting.

Use of proprietary funds

There are two types of proprietary funds: internal service funds and enterprise funds. The basic difference between them derives from who the primary customer is. Enterprise funds provide goods and services to customers outside the reporting entity; internal service funds provide goods and services to internal customers. The two fund types and their uses are defined as follows:

1. Enterprise fund — This type of fund may be used to report any activity for which a fee is charged to external users for goods or services. An enterprise fund must be used when any of the following ...