Which of the following funds are proprietary funds?

• A. Enterprise funds and internal service funds
• B. General fund and special revenue funds
• C. Debt service fund and capital projects fund
• D. Fiduciary funds and investment funds

Answer: (A)

Proprietary funds mimic private-sector accounting and use accrual basis accounting to report net position, changes in net position, and full-cost pricing. They are funded by charges to users, either external customers or internal departments within the government. The two types that fit this category are enterprise funds, which operate like businesses serving external customers (for example, a city-owned sewer or water utility), and internal service funds, which provide goods or services to other departments within the government and recover costs through internal charges. Other governmental funds (general, special revenue, debt service, capital projects) use modified accrual accounting and focus on current financial resources rather than full accrual-based net income, and fiduciary funds are separate from the government’s own resources and not considered proprietary. Therefore, enterprise funds and internal service funds are the proprietary funds.