Final answer:
The appropriate basis of accounting for an agency fund is the accrual basis, because it involves tracking resources held in a custodial capacity that are due to others.
Step-by-step explanation:
The appropriate basis of accounting for an agency fund is the accrual basis. Agency funds are used to account for resources held by a government in a purely custodial capacity. These can include taxes collected on behalf of other governments, as well as other resources that the government is holding but does not own. Under the accrual basis of accounting, revenues are recorded when earned and expenses are recorded when incurred, regardless of when the related cash transactions occur. This matches the conditions of an agency fund since the fund is responsible for tracking resources that are due to others and must report these obligations accurately. Therefore, the correct answer to the question, "Which of the following is the appropriate basis of accounting for an agency fund?" is a. Accrual basis.