Part 1
Internal service funds have a similarity with the enterprise funds, except the clients are other departments and businesses of the government within the municipal. It is more of a cost reimbursement account. Internal service funds are utilized in accounting for governmental departments or units that provide goods and services to other enterprises and departments on a cost reimbursement basis. Examples of activities that fall under internal service funds are self-insurance, vehicle repair services, purchasing department, a printing center, supplies store and data processing services among others. The general fund should not be used to account for these since that will lead to loss of transparency over the actual cost of things. The government may also account for these services in its general fund. However, there is no requirement that specific activities be accounted for in the internal service fund (Granof et al., 2016).
Part 2
According to McKinney (2015), the governments accrues for nonexpendable endowments funds on a full accrual basis because its assists in ensuring that the governments do not dissipate their assets by inappropriately basing their distributions on cash flows rather than economic earnings. As a result, the dividends and interests are recognized as earnings not necessarily when the cash is received. The full accrual basis ensures that the fund assets are not dissipated by those who handle endowment funds through inappropriate basing distribution on cash flow instead of economic earnings.
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To reflect on the ongoing decline in the value of the asset, it is significant to charge the depreciation on long-term assets held as fiduciary fund investments. By doing this, the reported earnings are reduced to show the economic decline of the asset in question. Therefore, distributing all the earnings reported, when there is a full depreciation of the asset, leads to having resources ion hand that is equivalent to the original cost of the asset. The assets can then be replaced by these resources.
References
McKinney, J. B. (2015). Effective financial management in public and nonprofit agencies . ABC-CLIO.
Granof, M. H., Khumawala, S. B., Calabrese, T. D., & Smith, D. L. (2016). Government and Not-for-Profit Accounting, Binder Ready Version: Concepts and Practices . John Wiley & Sons.
