Internal service funds and enterprise funds are types of proprietary funds used in government accounting to account for activities that involve business relationships within or outside the government. The financial statements required for the proprietary fund are net position statement and revenues, expenses and changes in fund net position statement.
To start with, an internal service fund is notably used to account for activities that provide goods and services to other funds as well as primary government agencies. The internal service fund can only be used when the reporting government is the main participant in an activity. More so, it utilizes the aggregate economic resource measurement focus as well as accounting accrual basis. This type of funds can be aggregated and reported in a separate column in the financial statement of the proprietary fund.
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On the other hand, an enterprise fund is a type of proprietary fund that is used to account for any activity for which external users are charged a fee for goods and services. For an activity to be reported in an enterprise fund, the activity should be financed with the debt that is only protected with revenues arising from the activity. Additionally, an activity can be reported in an enterprise fund if the service provision costs of the activity are recovered with a fee as stated by laws and regulation. The enterprise fund can also work when the pricing policy of activity is designed to recover its costs. The primary difference between an enterprise fund and an internal service fund is that an enterprise provides services to the public while the internal service fund provides services for agencies or departments of the same government.
Conclusively, it is clear that enterprise funds and internal service funds are proprietary funds that are utilized to account for government business-like activities. It is, therefore, clear that enterprise fund and internal service fund differ in service provision but fall under proprietary funds.
Reference
Freeman, R. J., Shoulders, C. D., Allison, G. S., Smith Jr, G. R., & Becker, C. J. (2014). Governmental and nonprofit accounting: Theory and practice. Journal Of Public Affairs Education Volume 20 Number 3 , 441.
