In what fund would the activities of a water utility department, which offers its services to the general public on a user charge basis be recorded?

• A. An enterprise fund
• B. A general fund
• C. An internal service fund
• D. A debt service fund

Answer: (A)

When a government operates a service that is provided to the public for a fee and expects to recover most costs through charges, it is accounted for in an enterprise fund. This type of fund, a business-type activity, uses accrual accounting and is financed and operated like a private enterprise. A water utility that serves the general public on a user-charge basis fits this model because the rates are set to cover costs and the operation is intended to stand on its own, with capital assets, depreciation, and a net position presentation. An internal service fund, by contrast, funds services provided to other parts of the government rather than to the public; a general fund covers broader governmental activities not accounted for in a business-like entity; and a debt service fund is dedicated to accumulating resources to pay debt, not to operating a service business.