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“And welcome to the session in which we look at proprietary funds. Now just the the kind of tbd overall picture. The government tab involved itself three activities. One is governmental funds and we talked about them in the prior session.
Basically government activities and they breakdown them into various funds in this session. We re going to look at the proprietary fund and in the next session. Would look at the fiduciary fund. So within the proprietary funds.
We have two type of funds two major funds internal service fund and enterprise. Now we could have many funds. Many internal service funds many enterprise funds. But those are the two categories.
The good news about the proprietary funds. They are run run like a business and because they are run like a business. We use accrual accounting. Which is something that you are familiar with versus these funds we used modified.
I know i keep repeating myself. It s it s good for you repetition is good thanks proprietary funds. Let s let s just basically give an overview about the proprietary funds. They use as i said accrual accounting.
They operate like a normal business for profit for example. The city of philadelphia operates its airport. So the city of philadelphia operated seaport under a proprietary fund that s how it that s how it works so they run it like the business and what does it mean there aren t like the business. They charge users who are the users basically customers.
What basically the customers a airline companies as well as people who are traveling okay. What s the measurement focus obviously if we said it s accrual well i already told you it s accrual. Then the measurement. Focus is the economic resource focus.
What does that mean we already cover this..
But this is a review. We account for all assets and all liabilities. Both current and non current that are included in the balance sheets on the balance sheet. Under the proprietary fund.
You re going to see. Everything long term. Assets. Long term liabilities short term assets short term liabilities.
And we use the term expenses. Why do we use the term expenses because we re using accrual accounting. Not expenditure okay and we do depreciate asset. We have depreciation expense.
Why do we depreciate acid because we put them on the books. If we put them on the books. Then we will be appreciate them it s as simple as that now what we called we called the fund equity we call the dannette position so we call assets minus liabilities is not position not fund balance when do we use the term fund balance. We use the term fund balance for the government governmental fund governmental fund we say assets minus liabilities equal to the fund balance what we do under proprietary funds as of liabilities equal to net net position used to be called net asset.
They want they want to the code of net position okay just know terminology that you need to you need to be aware of what else it increases by revenues and other financing sources. So when you bring revenue. When you bring other money the account. The fund balance.
The net position will go up not the fund balance. And it decrease by expenses and other operating finances. Uses it brings them down its segregated into capital contribution and retained earning components. Why because at the beginning when the fund is created the government will need to dump in some money to start the fund then the fund.
It should stand on its own by charging users with these so we have two types of proprietor of entropy enterprise fund or proprietary fund. Not enterprise fund. We have two types of proprietary funds. The first one is internal service funds internal service funds your users are internal.
Other government entity. Other government divisions so the users under the internal internal service funds are internal. It counts for activities in which goods and services are provided to other departments of the same government or other government for a charge on a cost to reimbursement basis. So you re doing is you are servicing.
Other government you are servicing other governments. So for example you d have for example. The it it help desk. It help desk okay and this it how best will service various departments within the government.
But it will charge them a fee. But those customers are various government divisions. Okay. Example include maybe they ll have a central stores that they sell supplies for all.
The government central computing. Like an it help desk wars this is what they maintain the servers motor pools were they fix their cause all the vehicles of the city or of the county they go to one place. It s called the motor pool and what happened that division will charge the various for example. The police department might have vehicles they need to fix it they will need to go to this motor pools.
And there will be charged a fee for example. The five departments they have trucks the people who inspect buildings they might have veins that they use different divisions might have different vehicles. But they all go to the same place to maintain them so this will be accounted for for example motor poles. It will be accounted for under the internal service fund for example.
If s citizen goes to that motor pole said. I would like to fix my car. They would say sorry we don t provide the service. Our service is only limited to government vehicles ok.
So this is what we invite internal service funds and printing services for example. All the printing is done in one central location. One division that does all the printing and a charge various departments. Ok.
So this is a report reported as a governmental activity in the governmental wide financial statement governmental wide..
We did not cover this yet so you can hold on this just know that it s going to be reported as a governmental activity. Just know it s going to be reported as a governmental activity and once we look at the government wide financial statement. I will remind you ok because it primarily benefit the government because it primarily benefit. The government.
So this is the internal service fund. Now. They also have an enterprise fund again. The internal service found all these applies to it that use accrue all it accounts for all assets.
So on and so forth the enterprise fund. The same concept because they re both under the proprietary funds. It uses full accrual full economic resources. So on and so forth the enterprise fund also charges fees to the users.
But those are external users. So now you are dealing with customers you re not dealing with said. It you re not your give you are three thing. The users as customers your full blown business.
Because the government does operate some businesses ok and they have to account for them business in a businesslike manner account for activities in which goods and services are provided to the general public for a charge charge means a fee your chance of a fee reported as a business type in the governmental wide financial statement emporia about the governmental wide yet but notice they re reported differently than the internal. So here they differentiate the internal service fund. They are reported as government activities when it comes to the government wide financial statement. The enterprise fund are reported as business type activities and the government wide financial statements.
Obviously because they service outside or not the government itself example would include electric and what are the abilities for example your water. You pay for your water on a user charge basis. So the government charges. You for water.
The airports might be run by the government parking garages. You know the city. You might have parking garages and various places in the city. And when you want to park your car well you cannot say i m paying taxes.
They re going to have to charge you a fee just like everybody else they might also have a transportation system..
Like the bus system or the subway system for example in state of pennsylvania. The state operates the liquor store basically if you want to buy any liquor you have to go to a state store. So the state operate the business. The state operate the business just like any other any other 7 eleven store or any other convenience store.
But they sell liquor and the reason they re into the glyph liquor business. Because there s a lot of profit and the liquor business in the state of pennsylvania. Decided to do so the state of pennsylvania. Also for example.
The city of philadelphia. They ll have a zoo. They will charge you a fee to go into the zoo. They might have municipal golf course and the pa liquor store is another example so those are examples of enterprise fund also the city of philadelphia.
They operate the airport in a businesslike fashion. So they account for it under an enterprise fund. So this is basically those are the two types of proprietary funds. So in this session.
We focus on the proprietary fund and there are two types. One is internal service funds. Which is service other government business within the government that service. Other government and enterprise fund that service.
External users who are customers. The general public. What s left in the funds that we haven t covered yet is fiduciary funds and we ll need to take a look at what are the fiduciary funds and after that it means. We have covered all the type of funds that we need to account for later on in this course.
If you have any questions any comments email me ” ..
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