Which debt service fund would normally have the largest balance in its Fund Balance account?

• A. Capital projects debt service fund
• B. Serial bond debt service fund
• C. Term bond debt service fund
• D. Revenue bond debt service fund

Answer: (C)

Debt service funds exist to accumulate resources to pay interest and principal on long‑term debt. The size of the fund balance depends on how the debt is structured. For term bonds, the principal is due in full at a single future date, so a sinking fund is built up over the life of the debt to ensure there are enough resources to retirement all at maturity. Those contributions accumulate into a sizable balance, often the largest among debt service funds, because the money isn’t spent until the single big payoff date. Serial bonds, by contrast, require principal payments in annual installments, so funds flow out regularly and the balance doesn’t build to a large amount. Revenue bond debt service funds rely on the enterprise’s net revenues, which can fluctuate and are used to pay debt service as it comes due, typically not producing as large a dedicated balance. Capital projects debt service funds may accumulate funds tied to a project, but the defining feature here is the lump-sum maturity of term bonds, which tends to yield the largest fund balance.