An internal service fund normally uses which of the following budgetary accounts?

• A. It normally uses budgetary accounts.
• B. It uses no budgetary accounts.
• C. It normally does not use budgetary accounts.
• D. It uses a separate budgetary ledger per department.

Answer: (C)

Internal service funds are a type of proprietary fund, accounting much like a business. They operate on the accrual basis and focus on costs, interfund charges, depreciation, and other operating activities rather than on budgetary control. Because budgetary entries (such as appropriations, estimated revenues, and encumbrances) are a feature of governmental funds used for current financial resources measurement, they are not part of the internal service fund’s usual accounting. So, the normal practice is that an internal service fund does not use budgetary accounts. Some governments may prepare a budget for management control purposes, but those budgets aren’t reflected as budgetary accounts within the fund’s financial statements.