Which of the following statements concerning the reporting of internal balances by a government at the end of its fiscal year is true?

• A. The Internal Balances Amounts Reported in the Statement of Net Position Columns Represent Activity Between Governmental Activities and Business-type Activities.
• B. They Represent Cash Held Between Funds.
• C. They Are Interfund Transfers Between Funds Within the Same Fund Type.
• D. They Reflect Only Operating Transactions Within the General Fund.

Answer: (A)

Internal balances on the government-wide net position represent interfund receivables and payables between the government’s governmental activities and its business-type activities. These balances arise when one activity owes another—for example, a General Fund charge for shared services or a short-term loan between activities. At year-end, they show the net amount owed across these two activity types and are not simply cash held between funds or transfers. This description matches how the government‑wide statements reveal cross-activity obligations, making it the best choice.