Interfund Loan - Short-Term Borrowing Between Funds
Recording a short-term interfund loan from the General Fund to a Special Revenue Fund experiencing a temporary cash flow shortage, with repayment terms established by the governing body.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Interfund Loan Receivable - Due from Special Revenue Fund (GF) | Asset (+) GF | 250,000.00 | - |
| Cash - General Fund | Asset (-) GF | - | 250,000.00 |
| Cash - Special Revenue Fund | Asset (+) SRF | 250,000.00 | - |
| Interfund Loan Payable - Due to General Fund (SRF) | Liability (+) SRF | - | 250,000.00 |
💡 Accountant's Note
Unlike transfers (no repayment expected), interfund loans are INTENDED to be repaid. They are classified as 'Advances to Other Funds' (long-term) or 'Due from Other Funds' (current) depending on repayment timing. These are BALANCE SHEET items in both funds — not revenue, expense, or financing sources/uses. The lending fund records a receivable; the borrowing fund records a payable. If the borrowing fund is unlikely to repay, the loan should be reclassified as a transfer (and the receivable written off). In government-wide statements, interfund loans between governmental funds are eliminated.
Practitioner & Systems Framework
💻 ERP Architecture
Interfund loans require formal authorization (resolution specifying terms, repayment schedule, and interest if applicable). Track receivables/payables by fund in the ERP. Year-end aging of interfund loans identifies those that may need reclassification to transfers. Many state audit offices prohibit or limit interfund borrowing without governing body approval.
⚠️ Audit Flags
Auditors assess whether long-outstanding interfund loans represent actual repayable obligations or de facto subsidies (which should be transfers). Interfund loans that have been outstanding for years without repayment activity are a finding — they overstate assets in the lending fund and understate the need for interfund transfers.
📄 Required Documentation
Governing body resolution authorizing the loan with repayment terms, board minutes, interfund loan agreement (if formal), aging of interfund loan balances, repayment schedule, financial analysis of borrowing fund's ability to repay.
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