Comparing Proprietary Fund Accounting to For-Profit Organizations

School: Colorado State University, Global Campus - Course: ACT 555 - Subject: Accounting

Custodial Fund Accounting Option 1 Tammy Weatherford Colorado State University Global ACT555 Dr. Dushyant Gosai October 30, 2022

2 Custodial Fund Accounting Custodial accounting is a financial record-keeping process used in banks or trust funds to benefit a client or a beneficiary. The accounting prices keep records of different finances of assets possessed by someone for accountability purposes. Businesses engage in transactions that generate revenue and must meet various tax obligations. This paper answers two questions related to proprietary funds and the difference in financial reporting compared to financial reporting for for-profit organizations. It will also review a question concerning commissions earned by a sheriff's office and explain how such funds can be classified for accounting processes. Accounting for Proprietary Fund versus its Corporate Counterpart Proprietary Fund Types and Differences Proprietary funds account for government transactions involving business activities similar to for-profit transactions conducted by cooperatives or the private sector. These transactions can be made within the government or with other organizations outside the government. Although the government carries out these transactions, the accounting process reports them similar to that used by private entities (Chase, 2020). There are two types of proprietary funds that is, internal service funds and enterprise funds. The internal service funds account for interdepartmental transactions between the agencies or departments of a government. These funds indicate the resources used to finance goods and services within the departments or agencies of the same government (Chase, 2020). These funds are accounted for on a cost- reimbursement basis and use the accrual accounting basis when reporting the transactions. The enterprise funds account for transactions involving external users where a government

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3 organization charges them for various goods and services. Various conditions must be met to account for such transactions as enterprise funds. The transaction must be funded with a debt secured by a pledge of the total income from the transaction (Chase, 2020). As the law states, the service fees involved in these transactions must be recovered with an equivalent fee. The pricing policy for this transaction must also be designed to recover the costs involved in the activity. These conditions must be met before accounting for proprietary funds as enterprise funds. Proprietary fund financial statements and their corporate counterpart When accounting for proprietary funds, one must provide the statement of net position, revenues, expenses, changes in fund net position, and the statement of cash flows. Proprietary funds use the economic resource measurement focus in accounting and must indicate the enterprise and internal service funds in different columns (Chase, 2020). Government accounting focuses on government operations and how it uses funds to finance basic government functions. These funds can include the finances used to fund government projects like city projects, road maintenance, funds paid to contractors, funds used to purchase government assets, and fees the government charges for offering services to the public. Accounting for proprietary funds differs from the private sector because the government is considered a steward of taxpayer funds and needs resources to deliver various services. It also needs critical and extensive monitoring of its financial transactions (Chase, 2020). The government must provide public accounting reports for its spending to the public to enhance transparency and accountability. Although the government and private sector use the GAAP accounting standards, corporates have hired accountants to report and maintain their financial statements. Private accountants provide a consolidated financial statement, unlike public accountants provide statements as internal service funds and enterprise funds.