The General Fund has transferred cash to the appropriate fund for eventual retirement of term bonds issued for building construction and maturing in 10 years. Which funds would record this transaction?

• A. General Fund
• B. General Fund and Debt Service Fund
• C. Debt Service Fund only
• D. Capital Projects Fund only

Answer: (B)

Interfund transfers are used to move resources between funds and are not treated as expenditures. When the General Fund transfers cash to the fund that will retire the debt, both funds record the movement: the General Fund shows a decrease in cash and a transfer out, while the receiving fund shows an increase in cash and a transfer in. The Debt Service Fund is the appropriate recipient for resources earmarked to retire long‑term debt (term bonds), so it records the cash as an interfund transfer in to build up a dedicated pool for future debt service payments. The Capital Projects Fund would handle the construction activity and bond proceeds related to that project, but the retirement of the bonds is managed by the Debt Service Fund. So both the General Fund and the Debt Service Fund are involved in recording this transaction.