Governmental Accounting: Proprietary Funds & Business Activities

Measurement Focus for Business-Type Activities

What is the appropriate measurement focus for governmental business-type activities?

Economic resources.

Identifying Non-Proprietary Funds

Which of the following is not considered a proprietary fund?

City Hall Capital Project Fund.

Basis of Accounting for Proprietary Funds

What is the appropriate basis of accounting for the proprietary funds of a governmental entity?

Full accrual.

Reasons for Governmental Business-Type Activities

What is a valid reason for governmental entities to engage in business-type activities?

The entity can provide the services more cheaply or efficiently than a private firm.

Arguments for Separate Proprietary Accounting Principles

What is a valid argument for separate accounting principles for proprietary activities?

The measurement focus on all economic resources is more consistent with the FASB's objectives that financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services.

Key Reason for Business-Type Accounting in Proprietary Funds

What is a key reason for using business-type accounting to account for proprietary fund activities?

The measurement focus on all economic resources is more consistent with the FASB's objectives that financial reporting should provide information to determine whether current-year revenues were sufficient to pay for current-year services.

Budget Types Not Prepared for Proprietary Funds

Which budget type is not typically prepared for an activity accounted for in a proprietary fund?

Appropriation budget.

Accounting for Nonreciprocal Transfers

Consider a $500,000 nonreciprocal transfer:

• The appropriate entry in the general fund to account for this transfer would be a credit to cash for $500,000 and a debit for $500,000 to Nonreciprocal Transfer Out.
• The appropriate entry in the internal service fund is a debit to cash for $500,000 and a credit for $500,000 to Nonreciprocal Transfer In.

Accounting for General Obligation Bonds in Internal Service Funds

Cougar City issued $2 million in general obligation bonds to acquire a fleet of vehicles for the Central Motor Pool Internal Service Fund. At the date of issue, the appropriate entry in the Internal Service Fund is a $2 million debit to cash and a $2 million credit to Bonds Payable.

Cash Flow Statement Classifications

• Cash inflows from Investing Activities include: Interest and dividends received.
• Cash outflows from Capital and Related Financing Activities include: Purchases of capital assets.