The Difference Between Enterprise Funds and Internal Service Funds
Understanding Enterprise Funds and Internal Service Funds
Enterprise Funds: Enterprise funds are used by governments to account for operations that are similar to those often found in the private sector. These operations are typically services provided to the public for a fee. Examples of services funded by enterprise funds include public utilities, airports, and parking facilities.
Internal Service Funds: Internal service funds, on the other hand, are used to account for services provided within the same government entity to other departments or agencies. These services are not provided to the public for a fee but are used to support the internal operations of the organization. Examples of services funded by internal service funds include information technology services, fleet maintenance, and human resources.
It is important to understand the distinction between enterprise funds and internal service funds because it affects how the financial activities and resources of these operations are reported and managed. By identifying the customers who primarily benefit from the services provided, governments can better allocate resources and make informed decisions about the cost-effectiveness of these operations.
In conclusion, while both enterprise funds and internal service funds play a crucial role in governmental accounting, the key difference lies in the customers who benefit from the services. Enterprise funds cater to the general public, while internal service funds serve internal departments and agencies within the same government entity.