A county uses an agency fund to collect property taxes for both itself and on behalf of the three municipalities within its borders. If the county collected $7,000 of taxes during the month on behalf of the other municipalities, what would be reported in the agency fund?

Question

Quizplus · Accepted Answer

Agency funds are used to account for resources held by a government in a trustee capacity for others. Therefore, when the county collects taxes on behalf of other municipalities, it increases its assets (cash) by $7,000 and also increases its liabilities by $7,000, as these funds are owed to the other municipalities. This transaction does not affect the revenues, expenses, or equity of the agency fund.

A County Uses an Agency Fund to Collect Property Taxes