State and local governments retain interfund activity in fund financial statements to show each fund's resources, obligations and operating results. Government-wide financial statements aggregate those funds into governmental activities and business-type activities, requiring selected eliminations and reclassifications.
The Governmental Accounting Standards Board (GASB) governs both reporting perspectives.
- Governmental fund financial statements use the current-financial-resources measurement focus and modified accrual, recognizing expenditures and other financing sources and uses.
- Proprietary and fiduciary fund financial statements use the economic-resources measurement focus and accrual. Fiduciary activities remain outside government-wide financial statements.
- Government-wide financial statements use economic resources and accrual. Conversion adjustments affect reporting worksheets; they do not erase valid entries from individual fund ledgers.
Preparers identify the transaction's substance before they prepare journal entries. A repayment requirement, an exchange of services, correction of an earlier charge, and financing support produce different accounts even when identical cash amounts move between funds.
An interfund loan creates a repayment obligation and reciprocal receivable. Current balances generally use “due from” and “due to”; long-term balances use “advance to” and “advance from.” Principal receipts and...
Common mistakes
- Full advance treated as nonspendable. In Example 1, using $80,000 instead of $60,000 includes the $20,000 current installment: .
- Reimbursement balances omitted. Immediate-settlement accounting would omit Example 1's $12,000 receivable and payable because the reimbursement remains unpaid.
- Cross-activity amounts erased prematurely. Eliminating the $65,000 residual in both separate activity columns removes information required before the primary-government total.
Bottom line
- Loans create reciprocal receivables and payables; amounts no longer expected to be repaid become transfers.
- Long-term advances generally support nonspendable fund balance unless collection proceeds require restricted, committed or assigned classification.
- Services create seller revenue and purchaser expenditure or expense; reimbursements relocate an existing cost and can leave unsettled balances.
- Governmental transfers are other financing sources and uses; current proprietary presentation places transfers within the applicable subsidy category.
Exam shortcut
Read the requested reporting level first. For fund entries, identify repayment terms, an actual service bill, a previously mischarged cost, or financing support before selecting accounts. Mark each fund's activity column before preparing eliminations. Use two separate calculations for cross-activity amounts: receivables less payables, and transfers received less transfers provided. Circle “unpaid” independently of transaction classification.
The full lesson (about 4,098 words, 27 min read) adds 3 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- III.C5
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