Which statement describes how interfund charges are treated in government-wide statements?

Which statement describes how interfund charges are treated in government-wide statements?

• A. They are recorded as revenue in the general fund.
• B. They are eliminated in government-wide statements to avoid double counting.
• C. They are recognized as transfers between funds.
• D. They are ignored in the financial statements.

Answer: (B)

Interfund charges are internal transactions between funds. When the government-wide financial statements are prepared, these internal activities are eliminated so the government is shown as a single economic entity. If interfund charges were left in, the same resource could appear as both revenue (in the charging fund) and expense (in the receiving fund), double-counting resources. By eliminating interfund receivables/payables and interfund transfers, the government-wide statements present only resources from outside the government and how those resources were used, providing a clearer view of overall financial position.

Interfund charges are internal transactions between funds. When the government-wide financial statements are prepared, these internal activities are eliminated so the government is shown as a single economic entity. If interfund charges were left in, the same resource could appear as both revenue (in the charging fund) and expense (in the receiving fund), double-counting resources. By eliminating interfund receivables/payables and interfund transfers, the government-wide statements present only resources from outside the government and how those resources were used, providing a clearer view of overall financial position.