How to Manage Enterprise Funds Effectively

How should the general fund record the initial financing provided to the enterprise fund?

a Debit the contribution to enterprise fund account

b Debit the expenditures account

c Debit a reserve for advance to enterprise fund account

d Debit a due from enterprise fund account

When are enterprise fund assets considered a liability?

a Is not an enterprise fund liability

b Must be serviced through a debt service fund

c Is an enterprise fund liability if enterprise fund revenues are intended to service the debt

d Is reported both as a long-term fund liability and a general obligation liability

What is the main purpose of creating an internal service fund?

a Debt service

b Centralized purchasing

c Perpetual care of cemeteries

d Tax collection and recording services

When should enterprise funds be used in accounting for governmental activities?

a Providing goods and services to the public

b Providing goods and services to other departments of the government

c Providing goods and services to the public if a substantial amount of revenue is derived from user charges

d Collection of money from the public

Final answer:

The general fund would debit a 'due from enterprise fund' account for initial financing. Enterprise fund assets financed through general obligation bonds are an enterprise fund liability when expected to be serviced by the fund's revenues.

Explanation:

The questions here relate to the financing of an enterprise fund, the type of debt used, the purpose of an internal service fund, and the uses of enterprise funds in accounting for governmental activities. In terms of initial financing from a city government, the general fund would debit a 'due from enterprise fund' account, expecting prompt repayment.

Enterprise fund assets financed through general obligation bonds are considered an enterprise fund liability if the funds' revenues are expected to service the debt. An internal service fund is most likely created to provide centralized purchasing for governmental activities. Lastly, enterprise funds should primarily be used in accounting for governmental activities that involve providing goods and services to the public, especially when a substantial amount of revenue is expected to come from user charges.

This reflects governments' fiscal responsibility in managing their budget deficits and need to borrow while ensuring that the spending's impact is carefully considered, as excessive borrowing can negatively impact the private sector, lead to trade imbalances and even financial crises.