Which financial statements are required for a proprietary fund?

Proprietary funds are an important aspect of a government’s financial activities, serving as business-like entities that generate revenue and cover their own expenses. These funds include enterprise funds and internal service funds, and as such, their financial reporting requirements differ from governmental funds. To properly manage and analyze the financial position and performance of proprietary funds, specific financial statements are required. In this article, we will explore the necessary financial statements and provide answers to some frequently asked questions related to proprietary funds.

Which financial statements are required for a proprietary fund?

For proprietary funds, the financial statements required are:
1. Statement of Net Position: This statement provides an overview of the fund’s assets, liabilities, and net position, showing the financial position at a specific point in time.
2. Statement of Revenues, Expenses, and Changes in Fund Net Position: This statement outlines the fund’s operating revenues, operating expenses, non-operating revenues and expenses, and changes in net position during a given period.
3. Statement of Cash Flows: This statement presents the cash inflows and outflows during the period, categorized into operating activities, investing activities, and financing activities.
4. Statement of Fiduciary Net Position (if applicable): This statement is required for internal service funds that hold resources in a fiduciary capacity, disclosing the assets, liabilities, and net position of those resources.

FAQs

1. What is the purpose of the Statement of Net Position?

The Statement of Net Position provides information on the proprietary fund’s total assets, liabilities, and the resulting net position, allowing stakeholders to assess the fund’s financial health and evaluate its ability to meet obligations.

2. What does the Statement of Revenues, Expenses, and Changes in Fund Net Position convey?

This statement highlights the proprietary fund’s revenues and expenses, both operating and non-operating, and shows the resultant change in the fund’s net position. It offers insights into the fund’s financial performance.

3. Can you explain the significance of the Statement of Cash Flows for proprietary funds?

The Statement of Cash Flows enumerates the cash inflows and outflows of the proprietary fund, indicating how cash is generated and utilized across operating, investing, and financing activities. It helps assess the fund’s liquidity and cash management practices.

4. Why is the Statement of Fiduciary Net Position necessary for internal service funds?

Internal service funds often manage resources on behalf of other government funds or departments. The Statement of Fiduciary Net Position provides a clear snapshot of the resources held in a fiduciary capacity, ensuring transparency and accountability.

5. Are proprietary funds required to prepare a Statement of Revenues, Expenses, and Changes in Fund Balance?

No, proprietary funds follow a different reporting model and are required to prepare a Statement of Revenues, Expenses, and Changes in Fund Net Position, as mentioned earlier.

6. What information does the Statement of Revenues, Expenses, and Changes in Fund Net Position show?

This statement reveals the operating revenues (such as charges for services), operating expenses (like salaries and supplies), non-operating revenues (interest income), non-operating expenses (interest expense), and the resulting changes in net position.

7. How does the Statement of Cash Flows help users of the financial statements?

The Statement of Cash Flows provides users with insights into the proprietary fund’s cash inflows and outflows, facilitating analysis of the fund’s ability to generate cash and its cash management practices.

8. Are proprietary fund financial statements subject to audit?

Yes, like other financial statements, proprietary fund statements are subject to an audit to ensure the accuracy and reliability of the reported financial information.

9. Can a proprietary fund have multiple businesses within it?

Yes, a proprietary fund can operate multiple businesses within it, such as a government-owned utility providing both water and electricity services. Each business may have its own separate financial data within the fund’s financial statements.

10. How do proprietary fund financial statements differ from those of governmental funds?

Governmental fund financial statements focus on current financial resources and use the modified accrual basis of accounting, while proprietary funds focus on proprietary capital assets and use the full accrual basis of accounting.

11. Are proprietary fund financial statements disclosed to the public?

As part of financial transparency and accountability, most proprietary fund financial statements are disclosed to the public to ensure stakeholders have access to relevant financial information.

12. Are there any specific accounting standards for proprietary fund financial statements?

Yes, the Governmental Accounting Standards Board (GASB) sets the accounting standards for proprietary fund financial statements in the United States. These standards ensure consistent and transparent financial reporting practices.

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