The City of Cinnamon Hill operates a central motor pool as an internal service fund for the benefit of the city's other funds and departments. In the current year, this fund charged the Parks Department $30,000 for vehicle rentals. What account should the internal service fund use to record these charges?

• A. Revenue from Services
• B. Billings to Departments
• C. Interfund Transfers In
• D. Charges to Departments

Answer: (B)

Internal service funds earn revenue by charging other funds for services they provide. When the Parks Department uses the motor pool, the ISF records the amount as an internal bill to departments. The appropriate account name for this internal charge is Billings to Departments, which clearly reflects that the revenue comes from charging other city funds for services rendered. The entry in the internal service fund would recognize a receivable from the Parks Department (interfund) and credit Billings to Departments as revenue. The Parks Department would record an expenditure and a liability to the ISF, and when payment is made, the ISF would debit cash and credit the receivable. Transfers In are for non-operating transfers between funds and do not reflect service charges, while Revenue from Services is a more general label not specific to the interfund billing context, and Charges to Departments is not the standard GASB naming convention used here.