The next type of fund that we will examine is the proprietary fund. There are two types of proprietary funds—enterprise funds and internal service funds. Specific uses for these two types of proprietary funds will also be examined.

The first thing to realize about proprietary funds is that they use a different basis of accounting and measurement focus than the governmental funds than have been discussed in this chapter so far. Proprietary funds use the accrual basis of accounting and the economic resources measurement focus. This means that the balance sheets of proprietary funds will reflect both current and noncurrent assets and liabilities. In other words, capital assets (such as infrastructure, buildings, equipment, etc.) are recorded as assets by the fund. In addition, debt issued related to the activities of the proprietary fund is recorded as liabilities on the balance sheet of the proprietary fund. (Keep in mind that the assets and liabilities of the proprietary funds are also included in the assets and liabilities of the government-wide statement of net assets.) In addition to recording noncurrent assets and liabilities, which is basically a result of their measurement focus, proprietary funds also recognize revenues and expense on the accrual basis of accounting, which means that revenues and expenses are recorded in different accounting periods than they would be by governmental funds. Chapter 2 describes the accrual basis of accounting that is used by proprietary funds.

One overly simplified way of viewing the accounting used by proprietary funds is that it is basically the same as that used by commercial enterprises and not-for-profit organizations. However, since commercial enterprises and not-for-profit organizations follow the accounting rules set by the Financial Accounting Standards Board (FASB), does that mean that proprietary funds should also follow those rules? Not exactly. GASB Statement No. 20, “Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting” (GASBS 20), sets the rules in this area and they can be slightly confusing. Statement No. 20 requires that proprietary funds apply all applicable GASB pronouncements, as well as the following pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements:

• FASB Statements
• FASB Interpretations
• Accounting Principles Board (APB) Opinions
• Accounting Research Bulletins (ARBs)

Taken From : Governmental Accounting Made Easy

This entry was posted on Friday, February 27th, 2009 at 4:40 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.