Under GASB standards, an internal service fund should prepare all of the following financial statements except a:

• A. Statement of Net Position
• B. Statement of Revenues, Expenditures, and Changes in Fund Balance
• C. Statement of Cash Flows
• D. Notes to Financial Statements

Answer: (B)

Internal service funds are proprietary funds, reported on the accrual basis much like business-type activities. Because of that, they present a Statement of Net Position to show assets, liabilities, and net position; a Statement of Revenues, Expenses, and Changes in Fund Net Position to show operating results; and a Statement of Cash Flows to detail cash inflows and outflows. Notes to the Financial Statements provide the necessary disclosures. The format used for governmental funds—a Statement of Revenues, Expenditures, and Changes in Fund Balance—is not appropriate for proprietary funds, so it is not prepared for an internal service fund.