Question

When must an enterprise fund be used to account for an activity?

a. When debt is backed solely by fees and charges.
b. When a legal requirement exists that the cost of providing services for an activity, including capital costs, be recovered through fees and charges.
c. When a government has a policy to establish fees and charges to cover the cost of providing services for an activity.
d. When any one of the above conditions exists.

Answer 1

An enterprise fund is required when debt is backed by fees, when there's a legal requirement to cover costs through fees, or when a policy exists to establish such fees.

Step-by-step explanation:

An enterprise fund must be used to account for an activity when any of the following conditions exists:

• When debt is backed solely by fees and charges.
• When a legal requirement exists that the cost of providing services for an activity, including capital costs, be recovered through fees and charges.
• When a government has a policy to establish fees and charges to cover the cost of providing services for an activity.

Essentially, an enterprise fund is used when a government service operates in a manner similar to a private business where the services provided are funded primarily through user charges.