What is the treatment of an internally generated surplus or deficit in an internal service fund in government-wide financial statements?

Prepare for the CPFO Accounting Test. Study with multiple choice questions, each with hints and explanations. Set yourself up for success!

In government-wide financial statements, the treatment of an internally generated surplus or deficit from an internal service fund involves an adjustment to expenses for internal customers. This requires recognizing that internal service funds are created to provide services to other governmental departments or agencies, and any surplus or deficit generated by these funds needs to reflect on the expenses incurred by the departments utilizing these internal services.

When a surplus is present, it indicates that the costs charged to the internal customers for services provided were lower than the actual expenses incurred. Conversely, a deficit indicates that costs exceeded the revenues generated from internal customers. By adjusting expenses based on these outcomes, financial statements more accurately present the economic reality of the operations and their cost efficiency.

Moreover, this adjustment helps align the financial performance of the internal service fund with the overall financial position of the government entity, ensuring a true reflection of resource allocation and usage. Thus, the adjustment to expenses is crucial for providing clarity in the financial reporting of an entity's internal transactions.

Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy