Which component should be adjusted to eliminate surpluses or deficits from internal service funds?

The adjustment needed to eliminate surpluses or deficits from internal service funds primarily focuses on the expense of internal customers. Internal service funds are designed to operate much like a business, providing goods and services to other departments or agencies within a government entity. These funds often involve the allocation of costs to those departments benefiting from the services, and the goal is to ensure that the internal service fund operates on a break-even basis over time.

When there is a surplus, it implies that revenues exceeded expenses, and conversely, a deficit indicates that expenses outpaced revenues. Adjusting the expenses of internal customers allows an organization to align the actual costs incurred with what is distributed among the internal customers, thus addressing any imbalances. This ensures that the operating costs are justly matched with revenues generated from internal service activities.

Adjustments to revenue, equity, or fund balance would not directly tackle the operational cost discrepancies that lead to surpluses or deficits. Therefore, fine-tuning the expenses of internal customers is a targeted approach to achieving fiscal balance within the context of internal service funding.