Question

An internal service fund has to charge a small profit to:

            A. Account for sales to other governments.

            B. Account for sales to joint ventures.

            C. Account for administrative fees to be collected from the general operating fund.

            D. Account for expenses related to capital improvements.

Answer 1

Answer.

Option A is correct.

ie. an internal service fund is used in governmental accounting to track goods or services shifted between departments on a cost reimbursement basis. An example of an internal service fund is a maintenance department that provides equipment maintenance services to other departments.

The local government should consider whether the fund’s primary purpose is to serve government, or whether the fund’s primary purpose is to provide, and charge a fee for, goods and services and a government is just a “customer”.