Proprietary Funds use which measurement focus and basis of accounting?

Proprietary Funds are designed to account for a government’s business-type activities and are characterized by their measurement focus and basis of accounting, which emphasizes the economic resources of the entity. The correct answer highlights that Proprietary Funds utilize an economic resources measurement focus combined with the accrual basis of accounting.

The economic resources measurement focus means that these funds consider all economic resources available, including both current and non-current assets and liabilities, in their reporting. This allows stakeholders to gain a comprehensive understanding of the financial position and overall financial health of the fund, as it encompasses all resources available to the entity, rather than just the immediate cash flow.

The accrual basis of accounting means that revenues are recognized when earned, and expenses are recognized when incurred, regardless of when cash transactions occur. This approach provides a more accurate reflection of the true financial performance over time, allowing for better decision-making and financial management.

In contrast to the other options, which focus on different measurement focuses or bases of accounting (such as current financial resources or cash basis), the economic resources and accrual basis accurately capture the nature of Proprietary Funds. This method aligns with the reporting standards for similar business entities, providing consistency and transparency in financial reporting for government-operated business activities.