What is the reason for recording inter-fund transfers in both transferring and receiving funds?

• A. To prevent revenue/expense distortion.
• B. To avoid taxation.
• C. To increase cash balances.
• D. To simplify accounting.

Answer: (C)

Interfund transfers are internal shifts of resources from one fund to another. Recording the transfer in both funds shows the exact flow: the transferring fund reduces its cash by the transfer amount, and the receiving fund increases its cash by the same amount. This keeps each fund’s statements accurate and prevents the transfer from being mistaken as operating revenue or expense, which would distort reported results. It also creates a clear audit trail of where resources came from and where they went, supporting proper accountability across funds. The purpose is not to avoid taxes or to magically increase cash, and while it adds entries in two places, the goal is correct reporting of the resource movement rather than simplifying the books.