16.1 Other Financing Sources (OFS) and Other Financing Uses (OFU)
Key Takeaways
- Under GASB Interpretation No. 5, ad valorem property taxes are deemed available only if collected during the fiscal year or within 60 days following the close of the fiscal year; collections expected beyond 60 days are recorded as deferred inflows of resources.
- Expenditures are recognized when the related fund liability is incurred, subject to major statutory exceptions: general long-term debt service is recognized only when legally due, compensated absences and claims are recognized when matured, and capital outlays are expensed immediately.
- Other Financing Sources (OFS) and Other Financing Uses (OFU) account for non-revenue financial inflows (bond proceeds, bond premiums, interfund transfers in) and non-expenditure outflows (bond discounts, interfund transfers out), reported separately below operating results.
Last updated: September 2026
Other Financing Sources (OFS) and Other Financing Uses (OFU)
Governmental funds frequently experience non-operating financial flows that increase or decrease spendable resources but do not meet the conceptual definition of revenues or expenditures. Under GAAP, these flows are classified as Other Financing Sources (OFS) or Other Financing Uses (OFU).
Operating Statement Presentation
On the Statement of Revenues, Expenditures, and Changes in Fund Balances, OFS and OFU are strictly segregated from core operating results:
\quad \text{Revenues} \\ \quad (\text{Expenditures}) \\ \hline \quad \textbf{Excess (Deficiency) of Revenues Over (Under) Expenditures} \\ \quad \text{Other Financing Sources} \\ \quad (\text{Other Financing Uses}) \\ \hline \quad \textbf{Net Change in Fund Balances} \\ \quad \text{Fund Balance — Beginning of Year} \\ \hline \quad \textbf{Fund Balance — End of Year} \\ \end{array}$$ ### Accounting for Long-Term Debt Issuances When a government issues general long-term bonds, the liability is not recorded in the governmental fund because bonds do not require current financial resources to be liquidated in the issuance period. Instead, the transaction is accounted for across OFS, OFU, and expenditures: - **Par (Face) Value of Bonds**: Credited to **Other Financing Sources — Proceeds of Bonds**. - **Bond Premium**: Credited to **Other Financing Sources — Premium on Bonds** (and typically transferred to the Debt Service Fund). - **Bond Discount**: Debited to **Other Financing Uses — Discount on Bonds**. - **Underwriting Fees and Issuance Costs**: Bond issuance costs (such as underwriter fees, legal counsel, credit rating agency fees, and printing costs) **must be expensed immediately as current expenditures**; they cannot be netted against bond proceeds or capitalized. #### Comprehensive Bond Issuance Journal Entry Assume the City of Oakridge issues $20,000,000 face value of general obligation capital improvement bonds at an issue price of 103 ($20,600,000 gross proceeds). The underwriter withholds $250,000 in underwriting fees, wiring the net proceeds of $20,350,000 directly to the city's Capital Projects Fund: $$\begin{array}{llrr} \text{Debit:} & \text{Cash} & \$20,350,000 & \\ \text{Debit:} & \text{Expenditures — Debt Issuance Costs} & \$250,000 & \\ \text{Credit:} & \quad \text{Other Financing Sources — Proceeds of Bonds} & & \$20,000,000 \\ \text{Credit:} & \quad \text{Other Financing Sources — Premium on Bonds} & & \$600,000 \\ \end{array}$$ *(To record issuance of general obligation bonds at a premium with underwriter fees expensed)* If the bond indenture requires the premium to be used exclusively for future debt service, the $600,000 premium is transferred from the Capital Projects Fund to the Debt Service Fund: *Capital Projects Fund:* $$\begin{array}{llrr} \text{Debit:} & \text{Other Financing Uses — Interfund Transfers Out} & \$600,000 & \\ \text{Credit:} & \quad \text{Cash} & & \$600,000 \\ \end{array}$$ *Debt Service Fund:* $$\begin{array}{llrr} \text{Debit:} & \text{Cash} & \$600,000 & \\ \text{Credit:} & \quad \text{Other Financing Sources — Interfund Transfers In} & & \$600,000 \\ \end{array}$$ --- ## Interfund Activity: The Four Recognized Categories Because state and local governments operate multiple independent fund ledgers, transactions between funds occur constantly. **GASB Statement No. 34** divides all interfund activity into **four distinct categories**, grouped into reciprocal and nonreciprocal flows: ``` +-----------------------------------------------------------------------------------+ | GASB INTERFUND ACTIVITY FRAMEWORK | +------------------------------------+----------------------------------------------+ | RECIPROCAL INTERFUND ACTIVITY | NONRECIPROCAL INTERFUND ACTIVITY | | (Bilateral exchange-like flows) | (Unilateral nonexchange resource shifts) | +------------------------------------+----------------------------------------------+ | 1. Interfund Loans | 3. Interfund Transfers | | • Short-term: Due to/from | • Inflows: Other Financing Sources | | • Long-term: Advance to/from | • Outflows: Other Financing Uses | | 2. Interfund Services Provided/Used| 4. Interfund Reimbursements | | • Quasi-external sales/buys | • Repayments of expenditures paid for | | • Seller: Revenues | another fund; treated as EXPENDITURE | | • Buyer: Expenditures/Expenses | REDUCTIONS (credits), NEVER revenues. | +------------------------------------+----------------------------------------------+ ``` ### 1. Interfund Loans (Reciprocal) Temporary borrowings between funds where repayment is legally required and expected. - **Short-Term Loans**: Recorded using current balance sheet accounts: **Due from Other Funds** (asset) in the lending fund, and **Due to Other Funds** (liability) in the borrowing fund. - **Long-Term Loans**: Recorded using noncurrent accounts: **Advance to Other Funds** (noncurrent asset) and **Advance from Other Funds** (noncurrent liability). Under GASB 54, the lending fund must establish a **Nonspendable Fund Balance** equal to the advance, because long-term receivables do not represent currently spendable financial resources, unless repayment is expected in the near term. ### 2. Interfund Services Provided and Used (Reciprocal / Quasi-External) Transactions that involve the sale of goods or services between funds at prices that approximate market exchange rates. - **Accounting Treatment**: Accounted for as if the transaction occurred with an outside commercial entity. The selling fund records **Operating Revenues**, and the purchasing fund records **Expenditures** (governmental fund) or **Expenses** (proprietary fund). - **Example**: The municipal Water Enterprise Fund bills the General Fund $50,000 for water consumed by city hall and public fire hydrants. General Fund debits *Expenditures — Utilities* $50,000 and credits *Due to Water Fund* $50,000. Water Enterprise Fund debits *Due from General Fund* $50,000 and credits *Operating Revenues — Water Charges* $50,000. ### 3. Interfund Transfers (Nonreciprocal) Routine, non-repayable shifts of resources from one fund to another without any exchange of goods, services, or repayment expectations. - **Accounting Treatment**: The receiving fund records an inflow under **Other Financing Sources — Interfund Transfers In**. The disbursing fund records an outflow under **Other Financing Uses — Interfund Transfers Out**. - **Example**: The General Fund provides an annual operating cash subsidy of $2,000,000 to the Municipal Transit Enterprise Fund to cover public bus operating deficits. ### 4. Interfund Reimbursements (Nonreciprocal) Repayments by one fund to another fund for expenditures or expenses that were initially paid by one fund on behalf of the other. - **Critical Exam Rule**: An interfund reimbursement is **NEVER recorded as a revenue or an Other Financing Source**! Recording an interfund reimbursement as revenue would duplicate public revenues across fund ledgers. - **Accounting Treatment**: The reimbursing fund records an **Expenditure** (or Expense), while the reimbursed fund records a **direct reduction (credit) of its Expenditures** (or Expenses). - **Example**: The General Fund inadvertently pays a $15,000 engineering invoice that legally belongs to a road project in the Capital Projects Fund. When the Capital Projects Fund reimburses the General Fund: *Capital Projects Fund (Reimbursing Fund):* $$\begin{array}{llrr} \text{Debit:} & \text{Expenditures — Capital Outlay (Engineering)} & \$15,000 & \\ \text{Credit:} & \quad \text{Cash} & & \$15,000 \\ \end{array}$$ *General Fund (Reimbursed Fund):* $$\begin{array}{llrr} \text{Debit:} & \text{Cash} & \$15,000 & \\ \text{Credit:} & \quad \text{Expenditures — General Administration} & & \$15,000 \\ \end{array}$$ --- ## Practical Public Finance Scenario: Multi-Transaction General Ledger Audit Evaluate how modified accrual rules apply to the following comprehensive fiscal year-end accounting problem: > **Scenario**: The City of Fairview closes its books for the fiscal year ending June 30, 2026. The independent audit team evaluates the following four transactions recorded by the city accountant: > 1. **Transaction 1**: On June 15, 2026, the city levies $8,000,000 in property taxes. By June 30, $6,500,000 is collected. From July 1 through August 29, 2026 (the 60-day window), $900,000 is collected. The remaining $600,000 is collected in November 2026 (day 130). The accountant recognized all $8,000,000 as fiscal year 2026 property tax revenue. > 2. **Transaction 2**: The city has $50,000,000 in 6% general obligation serial bonds outstanding, with annual debt service payments of $3,000,000 interest and $2,000,000 principal due on July 1 each year. As of June 30, 2026, the accountant accrued $3,000,000 in interest expenditure and liability in the Debt Service Fund for the 12 months elapsed. > 3. **Transaction 3**: The city issues $12,000,000 in capital improvement bonds at a price of 99 ($11,880,000 net proceeds), incurring $120,000 in legal and rating agency issuance fees deducted by the underwriter. The accountant recorded a net credit of $11,760,000 to *Revenues — Bond Proceeds*. > 4. **Transaction 4**: The General Fund paid a $35,000 maintenance bill that belonged to the Central Fleet Management Internal Service Fund. Two weeks later, the Fleet Management Fund reimbursed the General Fund $35,000. The accountant credited *Revenues — Miscellaneous Reimbursements* in the General Fund. ### Professional Audit Corrections 1. **Correction 1 (Property Tax Recognition)**: Under GASB Interpretation No. 5, available revenue is restricted to collections during the year ($6,500,000) plus collections within 60 days post-year-end ($900,000), totaling $7,400,000. The $600,000 collected in November is unavailable and must be reclassified from revenue to **Deferred Inflows of Resources — Unavailable Property Taxes**. The accountant overstated revenue by $600,000. 2. **Correction 2 (Debt Service Accrual)**: Under modified accrual, general long-term debt service expenditures are recognized **only when legally due and payable** (July 1, 2026, in fiscal year 2027). Unless the city has dedicated debt service resources already on deposit in the Debt Service Fund on June 30 and adopts the optional 30-day rule consistently, accruing $3,000,000 on June 30 violates GAAP. The accrual entry must be reversed, eliminating the $3,000,000 expenditure in fiscal year 2026. 3. **Correction 3 (Bond Issuance Presentation)**: Under GAAP, bond proceeds cannot be reported as operating revenue. The par value of $12,000,000 must be credited to **Other Financing Sources — Proceeds of Bonds**; the $120,000 discount must be debited to **Other Financing Uses — Discount on Bonds**; and the $120,000 underwriting/legal costs must be debited to **Expenditures — Debt Issuance Costs**. Netting issuance costs against proceeds violates statutory disclosure rules. 4. **Correction 4 (Interfund Reimbursement)**: An interfund reimbursement cannot be recorded as revenue, as this artificially inflates municipal operating revenues. The General Fund must record a **credit to Expenditures — Maintenance**, reducing operating expenditures to zero, offsetting the original erroneous cash disbursement.Test Your Knowledge
A city issues $10,000,000 face value of general obligation bonds at an issue price of 102 to finance construction of a civic recreation center. The underwriter withholds $150,000 in debt issuance and underwriting fees, remitting $10,050,000 in cash. How should this transaction be recorded in the Capital Projects Fund?
A
B
C
D