Internal service funds are intended to operate on taxes or other financing sources authorized by the legally enacted revenue budget for each year; therefore, they are classified as "governmental funds."
True or False
False. Internal service funds and enterprise funds are intended to cover operating costs on a continuing basis and ordinarily obtain their revenues from user charges, not taxes or other financing sources provided for by an annual budget; therefore, these are both proprietary, not governmental, funds. However, under GASBS 34, internal service funds are reported as governmental activities, not business-like activities, on the government-wide statements as long as their “customers” are primarily other departments or functions of the government.