Posted: July 6th, 2016

What are some of the factors that should be considered, when deciding if a particular undertaking by a government should be accounted for as an Enterprise Fund or as part of general governmental activities?

1. Can you identify the correct classification in the cash flow statement of the following cash transactions if they were transactions of a government enterprise fund in the first column, and if they were cash transactions of a business firm in the second column?

Transaction Type Government Classification Business Classification
Capital asset acquisition/sale
Capital debt issue/retirement
Noncapital debt issue/retirement
Interest paid on capital debt
Interest paid on noncapital debt
Receipt of investment earnings

MY SOLUTION:
Transaction Type Government Classification Business Classification
Capital asset acquisition/sale Capital and Related Financing Investing
Capital debt issue/retirement Capital and Related Financing Financing
Noncapital debt issue/retirement Noncapital Financing Financing
Interest paid on capital debt Capital and Related Financing Operating
Interest paid on noncapital debt Noncapital Financing Operating
Receipt of investment earnings Investing Operating

2. What are some of the factors that should be considered, when deciding if a particular undertaking by a government should be accounted for as an Enterprise Fund or as part of general governmental activities?