State Finance Challenge Practice Test

Interfund transfers are internal reallocations of resources between funds within the same government. Because these moves don’t come from outside customers or result from the fund’s own operating activities, they aren’t reported as revenues or expenses. Instead, the sending fund records a transfer out and the receiving fund records a transfer in. This separation keeps internal funding movements from being counted as external income or costs. For example, moving funds from a General Fund to a Debt Service Fund shows up as a transfer out in the General Fund and a transfer in in the Debt Service Fund, with no change to operating revenues or expenses. In the broader government-wide statements, these transfers are often eliminated to avoid double-counting intragovernmental activity.