Which of the following statements is not true for debt service funds?

• A. The debt service fund pays principal and interest from accumulated resources.
• B. The debt service fund records only the accumulation of resources for debt service, not the principal of the bonds.
• C. The debt service fund may have interfund transfers in from other funds.
• D. All tax-supported bond principal is shown as a liability of the debt service fund.

Answer: (D)

Debt service funds are used to accumulate resources to pay the principal and interest on tax-supported debt. The long‑term debt itself isn’t carried as a liability in the debt service fund; that liability resides in the government-wide (accrual) statements. So the idea that all tax‑supported bond principal is shown as a liability of the debt service fund isn’t correct—the bond principal is a government-wide liability, while the debt service fund holds the cash and records the payments of that debt.

The other statements fit the fund’s role: the fund pays principal and interest from accumulated resources, and it can receive interfund transfers to help build those resources. However, describing the debt service fund as only accumulating resources ignores the fact that it also makes debt service payments when due.