Governmental Accounting: Cash Flows and Proprietary Funds

How are receipts from customers categorized in governmental accounting?

A) Operating activity

B) Investing activity

C) Financing activity

D) None of the above

Answer:

Receipts from customers are classified as an operating activity, and the two types of proprietary funds are Enterprise funds and Internal service funds.

In governmental accounting, receipts from customers are categorized as an operating activity. This classification reflects the cash flows related to the core business operations of the entity, such as sales of goods or services to customers.

When it comes to proprietary funds in governmental accounting, there are two main types: Enterprise funds and Internal service funds. Enterprise funds are utilized to report activities for which a fee is charged to external users for goods or services. These funds are similar to a business entity's operations and are self-supporting through the fees charged. On the other hand, Internal service funds are used to manage the financing of goods or services provided by one department of a government to other departments on a cost-reimbursement basis.