Which statements concerning interfund transfers is true?

• A. Interfund transfers are never recorded
• B. They are shown in the notes only
• C. Interfund transfers are recorded as revenue in the general fund
• D. Interfund transfers are reported in the statement of revenues, expenditures, and changes in fund balance when transfers occur among governmental funds

Answer: (D)

Interfund transfers are internal reallocations of resources between funds and are not external revenues or expenditures. In governmental fund accounting, these transfers are shown as financing activities, not as revenue or expense. When transfers occur between governmental funds, the transfer out is recorded as an other financing use in the source fund, and the transfer in is recorded as an other financing source in the destination fund. Both funds reflect the transfer in their fund statements, typically in the statement of revenues, expenditures, and changes in fund balances, rather than in the notes. Therefore, the statement that interfund transfers are reported in the statement of revenues, expenditures, and changes in fund balance when transfers occur among governmental funds is correct.