1.) For what types of activities are internal service funds used to account? Provide several examples. Is a government required to account for the actions you cite in an internal service fund, or may it account for them instead in its general fund?
Internal service funds are funds used in the government accounting monitor goods and services exchanged from one department to another on a cost reimbursement basis. Money from the general funds distributed to these offices is used majorly to follow the movement of assets from one department to others in the same government or other entities. Examples of these funds include:
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• Water Resources Revolving Funds: accounts for the changes in administrative activities related to the water delivery in other departments in the government or the state at large.
• Equipment Service Funds: this accounts for the purchases, maintenance and administrative costs of the equipment used in the transportation sector in the government.
• Service Revolving Funds: These funds account for all the printing and procurement charges of all the other departments of the state or other entities involved.
• Prison Industries Revolving Fund: accounts for the goods produced by the prison inmates in all state prisons that are being sold to other government departments and other entities (Debt Service Funds, 2016).
The government does not have to account for all the activities in an Internal Service Fund, and this is because the department themselves can operate as separate and independent entities that will account for all the transactions that are carried out within their range of operation. The existence of these Internal Service Funds is essential as it enables the process of managing resources to be efficient for the central government.
2) What is the rationale for accounting for nonexpendable endowment funds on a full, rather than an adjusted, accrual basis? Why does it matter that depreciation is charged on long-term assets held as fiduciary fund investments?
When accounting for a nonexpendable endowment fund, it should be done on a full basis since this will reduce any chance for individuals involved tampering with the funds. Furthermore, this will provide a more accurate result of the outcome expected from the endowed funds. This is done on a full basis; this will create a clear and more precise way of tracking the fund. In case an adjusted basis is used to account for the endowed funds, the outcome of the invested funds will not be the same and will be fluctuating from one season of accounting to another (Endowments, n.d.), The accounting procedure mainly brought about by the errors in accounting and other miscellaneous reasons. The distribution of the funding may end up distorted whereby the total earnings of the entity will not be the same as the total revenues from the economy.
Depreciation charged on long-term assets held as fiduciary fund investments is essential. Long-term assets have present values required every season of accounting begins. The calculations are critical due to the uncertain behaviour of the economy at large. Secondly, the depreciation calculated is necessary so that the management may be able to calculate the recovery cost of that is incurred on the long-term assets and in getting the actual value of the assets. Depreciation on the assets will also enable the realization of the true profit of the financial.
References;
Debt Service Funds. (2016). Wiley GAAP for Governments 2016: Interpretation and Application of Generally Accepted Accounting Principles for State and Local Governments , 77-84. doi:10.1002/9781119239543.ch06
Endowments. (n.d.). Brill’s New Pauly . doi:10.1163/1574-9347_bnp_e1123140
