A debt service fund is a:

A debt service fund is a:

• A. Proprietary fund
• B. Fiduciary fund
• C. Governmental fund
• D. Custodial fund

Answer: (C)

Debt service funds are a governmental fund type used to accumulate resources for paying the principal and interest on general obligation debt as it comes due. They exist to support debt payments, not to run a business or to hold assets in trust for others, which is why they’re classified with the other governmental funds. They use the modified accrual basis and focus on current financial resources, rather than the full accrual accounting used by proprietary funds. Fiduciary funds (trusts or agency resources held for others) and custodial funds are designed to manage assets for third parties, while proprietary funds operate like a business; debt service funds do not fit those roles, so they are governmental funds.

Debt service funds are a governmental fund type used to accumulate resources for paying the principal and interest on general obligation debt as it comes due. They exist to support debt payments, not to run a business or to hold assets in trust for others, which is why they’re classified with the other governmental funds. They use the modified accrual basis and focus on current financial resources, rather than the full accrual accounting used by proprietary funds. Fiduciary funds (trusts or agency resources held for others) and custodial funds are designed to manage assets for third parties, while proprietary funds operate like a business; debt service funds do not fit those roles, so they are governmental funds.