The governmental activities journal entry to record the use of water provided by the city-owned water department (an enterprise fund) will include which debit?

• A. Debit Expenses
• B. Debit Capital Assets
• C. Debit Revenues
• D. Debit Intergovernmental Revenue

Answer: (A)

When governmental activities consume a service provided by another fund, the government-wide accounting records that consumption as an expense. In this case, the city’s governmental activities are using water from the city-owned water department (an enterprise fund), so the government incurs a cost for water service. The journal entry in the governmental activities would debit expenses for the water service and credit an interfund payable to the water department. The water department, in turn, would record revenue from charges for services.

This debit is the best fit because the government’s use of the water service increases its expenses. It wouldn’t be a capital asset because no asset is being acquired; it wouldn’t be revenues for the governmental activities since they’re not earning revenue from a sale here; and it wouldn’t be intergovernmental revenue since this is an internal interfund service charge, not a transfer from another government entity.