Which of the following should be accounted for in an internal service fund?

• A. Light poles to be paid for by affected property owners
• B. Van used to transport supplies to all city departments on a cost reimbursement basis
• C. Equipment used for supplying electric power to residents
• D. Maintenance building for public use

Answer: (B)

Internal service funds are used to account for activities that provide goods or services to other departments or funds of the same government on a cost-reimbursement basis. A van used to transport supplies to all city departments and charged back to them on a cost-reimbursement basis fits this pattern perfectly, because the city’s internal customers are the other departments, and the fund recovers costs through charges.

The other scenarios don’t fit internal service funds. Light poles funded by property owners reflect a charge to external beneficiaries or a special assessment, not an internal service activity. Equipment that supplies electric power to residents is a public utility and would be in an enterprise fund, serving external customers. A maintenance building for public use is a capital asset or general government facility, not an internal service operation serving internal departments on a cost-reimbursement basis.