A state government operates a lottery system, with a portion of the proceeds legally mandated to be transferred to the General Fund to support general government operations. This transfer is non-reciprocal and does not involve repayment. In the government-wide financial statements, how should this transfer be reported?
- AAs revenue in the Statement of Activities for the receiving fund.
- BAs an interfund transfer in the Statement of Activities.
- CAs an expense in the Statement of Activities for the transferring fund.
- DAs an interfund loan in the Statement of Net Position.
Show answer & explanationAnswer & explanation
Correct answer: B. As an interfund transfer in the Statement of Activities.
In government-wide financial statements, interfund transfers (non-reciprocal flows of assets between funds without equivalent value in return) are eliminated in consolidation. However, for internal consistency and reporting, they are typically presented as transfers in the Statement of Activities, affecting the change in net position of the respective governmental activities and business-type activities.
Why the other options are wrong
- A. Transfers are not revenues in government-wide statements; revenues arise from exchange transactions or nonexchange transactions that are not transfers.
- C. Transfers are not expenses in government-wide statements; expenses are for services or goods consumed.
- D. Interfund loans imply repayment, which is not the case here.
Interfund Transfers (Government-Wide)
Non-reciprocal flows of assets between funds within the same government. In government-wide financial statements, these are typically presented as 'Transfers' in the Statement of Activities.
- Represent a shift of resources without equivalent value in return.
- Eliminated in consolidation for government-wide Statement of Net Position.
- Reported as 'Transfers' in the Statement of Activities.
Memory trick: Government-wide views all funds as one, so internal shifts are just 'transfers'.