Which option is NOT a source to pay service charges for electronic payments?

• A. Compensating Balance Account
• B. Trust Fund
• C. Budget Appropriation
• D. Capital Reserve

Answer: (D)

The key idea is understanding what funds are appropriate for paying day-to-day operating costs such as service charges for electronic payments. Compensating balance accounts are kept with banks to offset banking costs, so those balances can effectively be used to cover processing charges. A trust fund holds assets for a specific purpose and, if allowed by its terms, can be used to pay approved expenses like payment processing fees. Budget appropriations are the usual resource for operating expenses, including service charges, because they are funds specifically set aside by the governing body to cover these costs. Capital reserves, however, are set aside for capital projects and major expenditures, not for regular operating costs. Using a capital reserve for service charges would misuse the fund and deplete resources intended for capital needs. So capital reserve is not a source to pay service charges for electronic payments.