| Course | ACC-5070 Government and Not-for-Profit Organization Accounting |
|---|---|
| Module | Module 4 |
| Paper type | Written Assignment 4: proprietary funds and debt service funds |
| Length | About 797 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | Master of Science in Accounting |
| Updated | October 2026 |
Free sample paper for ACC 5070 Module 4
Full Accrual Next Door to Modified Accrual: Lenape Hills Township's Water Utility and Debt Service Fund
Student Name
Master of Science in Accounting, Thomas Edison State University
ACC-5070: Government and Not-for-Profit Organization Accounting
Mentor Name
Month Day, Year
Full Accrual Next Door to Modified Accrual: Lenape Hills Township's Water Utility and Debt Service Fund
Introduction
Governments run some activities like businesses. Lenape Hills Township's water utility bills residents for water, borrows against those bills with revenue bonds and must recover its costs, so it is reported in an enterprise fund using the economic resources focus and full accrual. The township's library bonds, by contrast, are general obligations paid from taxes, so the money set aside to pay them sits in a debt service fund that uses modified accrual. Comparing the two shows how the basis of accounting follows the nature of the activity (Reck et al., 2020).
Part A: The Water Utility Enterprise Fund
Depreciation appears as an expense because the enterprise fund measures the full cost of service, including the use of capital assets. Interest on the revenue bonds is nonoperating, and the developer's donated mains are a capital contribution reported after income, not an operating revenue. Operating income of $540,000 shows that water rates more than cover the cost of running the system before financing.
| Statement of revenues, expenses and changes in fund net position, 2026 | Amount |
|---|---|
| Operating revenues: charges for water service | $3,400,000 |
| Operating expenses: personnel | 1,150,000 |
| Treatment chemicals, power and utilities | 720,000 |
| Repairs and maintenance | 380,000 |
| Depreciation | 610,000 |
| Total operating expenses | 2,860,000 |
| Operating income | 540,000 |
| Nonoperating revenues and expenses: interest earned on investments | 30,000 |
| Interest expense on revenue bonds | (310,000) |
| Income before capital contributions | 260,000 |
| Capital contributions: water mains donated by a developer | 150,000 |
| Change in net position | $410,000 |
The Statement of Cash Flows
Governmental enterprise funds must report cash flows by the direct method in four categories rather than the three businesses use, keeping noncapital financing apart from capital and related financing (Governmental Accounting Standards Board, 1999).
Two features differ from business reporting. Interest paid on revenue bonds falls in capital and related financing, not operating activities, because the bonds financed the system. Interest received falls in investing. The developer's donated mains, worth $150,000, did not involve cash, so they are disclosed as a noncash capital and related financing activity.
| Cash flows, 2026 | Amount |
|---|---|
| Operating activities: receipts from customers | $3,350,000 |
| Payments to employees | (1,150,000) |
| Payments to suppliers | (1,080,000) |
| Net cash provided by operating activities | 1,120,000 |
| Noncapital financing activities | None |
| Capital and related financing activities: principal paid on revenue bonds | (400,000) |
| Interest paid on revenue bonds | (310,000) |
| Acquisition and construction of capital assets | (900,000) |
| Net cash used for capital and related financing | (1,610,000) |
| Investing activities: interest received | 30,000 |
| Net decrease in cash | (460,000) |
| Cash, January 1 | 1,900,000 |
| Cash, December 31 | $1,440,000 |
| From operating income to cash from operations | Amount |
| Operating income | $540,000 |
| Depreciation | 610,000 |
| Increase in customer receivables | (50,000) |
| Increase in accounts payable | 20,000 |
| Net cash provided by operating activities | $1,120,000 |
Part B: The Debt Service Fund
The library bonds are $4,800,000 of serial general obligation bonds. In 2026 a principal installment of $400,000 matured on July 1, with interest of $190,000 due the same day. Resources came from a dedicated debt service tax levy of $480,000 and the $120,000 transfer from the General Fund recorded in Module 3.
Fund balance, restricted for debt service, rose by $10,000.
Interest that accumulates between July 1 and December 31, about $88,000, is not accrued in the debt service fund. Modified accrual books bond principal and interest only on the date they fall due, since the tax money set aside for them is not expected to arrive any sooner. The government-wide statements, on the accrual basis, do report that accrued interest as a liability, which is one of the items in the reconciliation between the two layers.
| Entry | Account | Debit | Credit |
|---|---|---|---|
| Transfer received | Cash | 120,000 | None |
| Transfer received | Other Financing Sources, Transfers In | None | 120,000 |
| Dedicated levy, all collected | Cash | 480,000 | None |
| Dedicated levy, all collected | Revenues, Property Taxes | None | 480,000 |
| Principal and interest due July 1 | Expenditures, Bond Principal | 400,000 | None |
| Principal and interest due July 1 | Expenditures, Bond Interest | 190,000 | None |
| Principal and interest due July 1 | Matured Bonds and Interest Payable | None | 590,000 |
| Payment to the fiscal agent | Matured Bonds and Interest Payable | 590,000 | None |
| Payment to the fiscal agent | Cash | None | 590,000 |
Why the Difference Matters
A resident reading the two funds sees different questions answered. The water utility's statements show whether rates cover the full cost of service, including wear on pipes and the cost of borrowing, which bears on future rate increases. The debt service fund shows whether enough money has been set aside to meet bond payments as they come due. Bond investors use both: revenue bonds depend on the utility's coverage of debt service by operating income, and general obligation bonds on the township's taxing power and its reserves. Standardized reporting of this kind appears to lower what governments pay to borrow (Baber & Gore, 2008).
References
Baber, W. R., & Gore, A. K. (2008). Consequences of GAAP disclosure regulation: Evidence from municipal debt issues. The Accounting Review, 83(3), 565-592. https://doi.org/10.2308/accr.2008.83.3.565
Governmental Accounting Standards Board. (1999). Basic financial statements, and management's discussion and analysis, for state and local governments (Statement No. 34). GASB.
Reck, J. L., Lowensohn, S. L., & Wilson, E. R. (2020). Accounting for governmental and nonprofit entities (19th ed.). McGraw-Hill Education.
ACC 5070 Module 4 instructions, in plain terms
The fourth ACC-5070 written assignment covers Module 4, proprietary funds and debt service funds, two fund types that sit at opposite ends of the measurement spectrum. The prompt sets its own length, and the paper carries the same weight as each of the other five in the written share. Expect to prepare an enterprise or internal service fund's operating statement and direct-method cash flow statement in four categories, classify revenues and expenses as operating or nonoperating, and record a debt service fund's transfers, tax revenues and bond payments, including the timing of interest recognition. This sample uses an invented township's water utility and library bonds; your prompt will supply its own figures.
Inside the ACC 5070 Module 4 example
The introduction explains why the two funds use different bases, which frames the rest. Part A presents the enterprise fund's operating statement in the required format, then explains why depreciation, bond interest and donated capital are reported where they are. The cash flow statement follows in four categories by the direct method, with a separate reconciliation table and the noncash disclosure. Part B records the debt service fund's resources and bond payments in a journal entry table and explains why interest is not accrued under modified accrual but is in the government-wide statements. A closing section explains what residents and bond investors learn from each fund.
Where the marks sit in the ACC 5070 Module 4 rubric
The utility and debt service problems earn a score out of 100 inside the written assignment share of 42 percent. On this assignment, mentors look for an enterprise fund statement in the correct format with operating and nonoperating items properly separated, a cash flow statement that uses the direct method and four categories, interest placed in capital and related financing or investing as appropriate, a correct reconciliation and a noncash disclosure. For the debt service fund, they check the recognition of transfers and taxes and the timing of principal and interest expenditures. Explanations of why the funds differ demonstrate understanding beyond the numbers. Showing why the same bond issue looks different in the utility and in the debt service fund is the comparison this module is built around.
Common ACC 5070 Module 4 mistakes, and how to avoid them
The most common errors are using the business three-category cash flow format, placing interest paid on revenue bonds in operating activities and accruing interest in the debt service fund. Remember the four categories: operating, noncapital financing, capital and related financing, and investing. Use the direct method, then reconcile operating income to operating cash. In debt service funds, record principal and interest when due, not as they accumulate. Disclose donated capital assets as noncash. Label each statement with its fund and basis at the top, so no reader mistakes accrual figures for modified accrual ones. A free first sample of your own ACC-5070 Module 4 problems is available on request.
Write yours, or have the desk draft it
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ACC 5070 Module 4 questions, answered
Where can I find a free ACC 5070 Module 4 sample paper?
The water utility and debt service fund assignment is reproduced above: an enterprise fund operating statement, a four-category direct-method cash flow statement and debt service entries.
What are the four categories of a governmental cash flow statement?
Operating activities, noncapital financing activities, capital and related financing activities, and investing activities.
Why is interest not accrued in a debt service fund?
Under modified accrual, a debt service fund records the bond payments it makes as expenditures in the period they fall due, since resources to pay them are not expected until then.
What basis of accounting do enterprise funds use?
The same footing a company uses: every resource and obligation counted, on full accrual.
Where is interest paid on revenue bonds reported in an enterprise fund's cash flow statement?
In capital and related financing activities, because the bonds financed capital assets.