Lesson: Internal Service Fund

In this lesson, Nick Palazzolo, CPA, dives into the workings of the Internal Service Fund utilized by government entities. He clarifies the distinction between services aimed at internal users (government employees) versus external users (citizens), emphasizing that the purpose is not to generate profit but to reimburse costs. By presenting practical examples such as hospital cafeterias, vehicle pools, and central printing services, Nick brings the concept to life and delineates how these funds operate differently from enterprise funds. He educates on revenue recognition in this context, explains journal entries for billings for services provided to other funds, and contrasts these with interfund transfers. This lesson further details the accounting for both operating and non-operating revenues and expenses within the internal service fund framework. Nick also illustrates how a new internal service fund is established, including initial funding and asset contributions, offering a clear picture of the fiscal mechanics at play in government accounting.