The General Fund transfers $115,000 to the debt service fund for a $100,000 principal and $15,000 interest payment. The recording would include:

• A. A debit to Interfund Transfers In in the debt service fund only.
• B. A credit to Interfund Transfers Out in the General Fund.
• C. A debit to Cash in the General Fund.
• D. A credit to Other Financing Sources — Interfund Transfers In in the debt service fund only.

Answer: (D)

Interfund transfers are not treated as revenues or expenditures. When one fund transfers resources to another, the sending fund records the outflow as an interfund transfer out, and the receiving fund records the inflow as an interfund transfer in, specifically as an Other Financing Source in the receiving fund.

In this case, the debt service fund gains 115,000 from the General Fund to cover debt service payments. The appropriate entry in the debt service fund is a credit to Other Financing Sources — Interfund Transfers In for 115,000. The accompanying entry would be a debit to Cash in the debt service fund (to reflect the cash received). The General Fund would record the corresponding outflow as a debit to Interfund Transfers Out and a credit to Cash for 115,000. The 115,000 represents the total transfer amount, not separately split into principal and interest for the transfer entry.

Thus, the correct recording is a credit to Other Financing Sources — Interfund Transfers In in the debt service fund.