A large city has been financing all of its services through property taxes and sales taxes. As the cost of services has been increasing, the city has found it necessary to raise its tax rates. A special commission appointed by the mayor suggests that it would be possible to reduce the property tax rate by charging residents a monthly fee to cover the costs of collecting and disposing of trash and garbage. The mayor likes the suggestion and wants to run the sanitation activity like a commercial business. Describe the fund accounting implications of adopting that suggestion.

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21-08-2022
Business

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A large city has been financing all of its services through property taxes and sales taxes. As the cost of services has been increasing, the city has found it necessary to raise its tax rates. A special commission appointed by the mayor suggests that it would be possible to reduce the property tax rate by charging residents a monthly fee to cover the costs of collecting and disposing of trash and garbage. The mayor likes the suggestion and wants to run the sanitation activity like a commercial business. Describe the fund accounting implications of adopting that suggestion.

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Parrain Parrain · Answer 1 · 2022-08-23T19:42:36+02:00

Based on the fact that the mayor wants the new fund and sanitation activity to be run like a commercial business, the accounting implications are that accrual based accounting will have to be adopted.

What are the fund accounting implications?

The fact that the new fund would make revenue based on monthly fees that are charged to residents for collecting and disposing trash and garbage means that this is an Enterprise fund. This is a kind of fund that collects fees for the government to enable it to provide a service.

Enterprise funds are treated as separate accounting entities from other activities of the government because the funds in them are solely for a certain service that the government should provide. As a result, these funds use accrual based accounting which is what the city would need to start using as opposed to the modified accrual accounting system that it was using.

Find out more on enterprise funds at https://brainly.com/question/15573974

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