Interfund Reimbursements

3 Accounting

3.9 Interfund Activities

3.9.4 Interfund Reimbursements

3.9.4.10 For cash basis financial reporting purposes, all revenue, expenditures/expenses, gains, losses, and other inflows/outflows resulting from exchange and exchange-like transactions should be recognized according to BARS 3.1.7.40, Fund Accounting and Fund Types. This means transactions should be presented at gross amounts unless the transaction is a reimbursement received in the same fiscal year (netting).

3.9.4.20 Interfund reimbursements are repayments from the fund responsible for particular expenditures to the fund that initially paid for them. They are adjustments to correct the assignment of the expenditures. Reimbursements reduce expenditures in the fund that is reimbursed and move the expenditures to the fund that ultimately pays for it. The offsetting transaction should be posted on an object level.

3.9.4.30 There is one major exception to this definition: frequently, internal service funds are created to account for cost allocation and purchasing. In those funds, cost allocations and payments for pooled purchases are treated as revenues rather than reimbursements.

3.9.4.40 Examples of reimbursements include: (1) correction of errors, (2) internal allocation of overhead and (3) payments received for others’ share of pooled activities (payments for a convenience) such as the distribution of utility and telephone bills among the departments and funds after one department has paid the bill or the allocation of insurance premiums and payrolls among various departments and funds.

(1) Correction of errors and (3) Payments for convenience example: Whether one fund accidentally pays another fund’s bill or whether they purposefully pay the bill with the intention to be reimbursed later, the accounting is the same.

General fund journal entry when paying the sewer fund’s phone bill:

General fund journal entry when receiving reimbursement:

The general fund credits the original expenditure account from the first journal entry to reduce the expenditure.

Water fund journal entry when it reimburses the general fund:

(2) Allocation of overhead costs example: The general fund processes all payroll and accounts payable for other funds/departments within the government. The cost of processing payroll and accounts payable (the general fund’s employee salaries, benefits, and supplies) is then allocated to other funds/departments. Throughout the year the government accounts for the expenditures in the general fund and then does a correcting journal entry at year-end to move the expenditures to the appropriate funds/departments that benefitted from the payroll and accounts payable processing staff and supplies. At year-end the general fund has recorded the following expenditures for processing payroll and accounts payable:

To remove the costs from the general fund, it needs to credit the original expenditure accounts:

The sewer fund is responsible for 10% of the total costs. The sewer fund’s journal entry is:

The other funds/departments that costs are allocated to will have similar journal entries to report their portion of the expenditures.

3.9.4.50 Reimbursements do not include recoveries for damages, whether from insurance or from private sources, grants, contractual payments, impact payments, or shared costs of providing services from the federal, state or local governments. Also, do not include expenditures which constitute direct cost of the activity like interfund taxes, utility payments, licenses, interest, etc.

Reimbursements from external parties

This information has moved to BARS 3.1.10.35, Accounting Principles.