Government Non Exchange Transactions and Government Interfund and IntraTransfer. CPA Exam FAR

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This page covers interfund transactions, reciprocal interfund transactions, interfund loans and interfund services, nonreciprocal interfund transactions.

NonExchange Expenditures

Reciprocal and Non-Reciprocal Exchanges


Interfund transactions are transactions between individual funds. Interfund transactions are of particular interest to financial statement preparers and users because failure to report these transactions properly results in two funds being misstated. Additionally, because most of these transactions are eliminated in the government-wide statements, it is particularly important they be identified in the accounts of the affected funds.

Like related party transactions, transactions between funds of the same government may not be assumed to be arm’s length in nature. An arm’s-length transaction is one in which both parties act in their own self-interest and are not subject to pressure or influence. GASB standards require that interfund transactions be classified into two categories, each with two subcategories. Journal entries to record interfund transactions are based on these classifications. Reciprocal interfund transactions are the internal counterpart to exchange and exchange-like transactions and include interfund loans and interfund services provided and used. Nonreciprocal interfund transactions include interfund transfers and interfund reimbursements.

Interfund Loans

Interfund loans are resources provided from one fund to another with the understanding that they will be repaid in the future. The fund providing the resources records an interfund receivable (Due from Other Funds) and the fund receiving the resources records an interfund payable (Due to Other Funds). Long-term loans use the terms Advance to Other Funds and Advance from Other Funds. Interfund loan receivables and payables are separately reported on the balance sheets of the affected funds.

Interfund Services Provided and Used

Interfund services provided and used represent transactions involving sales and purchases of goods and services between funds. An example is the sale of water from a water utility (enterprise) fund to the General Fund. In these transactions, one fund records a revenue (enterprise, in this example) and the other fund records an expenditure or expense (the General Fund). Sometimes called quasi-external transactions, these transactions are reported as if they were transactions with parties outside the government.

Interfund Transfers

Interfund transfers represent flows of cash or other assets without a requirement for repayment. An example would be an annual transfer of resources from the General Fund to a debt service fund. Interfund transfers are classified as other financing sources (the debt service fund) and other financing uses (the General Fund).

Interfund Reimbursements

Interfund reimbursements represent repayments to the funds that initially recorded expenditures or expenses by the funds responsible. For example, assume the General Fund had previously debited expenditures to acquire postage, but the postage should have been charged to a special revenue fund. The reimbursement entry would have one fund (the special revenue fund) debit an expenditure and credit Cash. The other fund (the General Fund) would debit Cash and credit an expenditure.

The financial statements of governmental funds are prepared on the modified accrual basis of accounting. Under modified accrual accounting, revenues are recognized when they are both measurable and available to finance expenditures of the current period. The term measurable means that the government is able to determine or reasonably estimate the amount. For example, property taxes are measurable before collection because the government determines the amount assessed and estimates any portion that will ultimately prove to be uncollectible. The term page available means the amount is expected to be collected within the current period or soon enough thereafter to be used to pay liabilities of the current period