Which of the following is a difference between enterprise funds and internal service funds?

• A. The fund's revenue recognition timing
• B. The customers who primarily benefit from the fund's service
• C. The fund's measurement focus
• D. The fund's tax status

Answer: (D)

The key distinction is who the fund serves. Enterprise funds are used for activities financed mainly by charges to external customers—the public or outside entities. Internal service funds, on the other hand, provide services to other departments within the government, with costs recovered from those internal users. Both fund types use accrual accounting and the economic resources measurement focus, so their revenue recognition timing and measurement approach are similar. The tax status of government entities isn’t what sets them apart—these funds aren’t subject to income tax anyway. So the main difference is whom the services benefit: external customers for enterprise funds vs internal government customers for internal service funds.