What is enterprise fund accounting, and give an example of a city service that uses it?

• A. An accounting method for services funded by general fund taxes; example public safety.
• B. An accounting method for services funded by user charges, such as water or sewer utilities, to cover operating costs and capital needs.
• C. A way to record capital projects only.
• D. A method of accounting for private sector contributions.

Answer: (B)

Enterprise fund accounting is a government accounting approach used for services that are funded by user charges and operated in a way that resembles private businesses. The idea is to keep the revenues from those charges separate and ensure they cover both ongoing operating costs and future capital needs, often including depreciation and long-term asset management. An example is water or sewer utilities, where the rates charged to customers are intended to pay for day-to-day service as well as major improvements and expansions. This contrasts with services funded by general taxes or activities funded solely by capital grants, and it’s not about recording private sector contributions.