How should a governmental fund report a long-term loan from another fund?

In governmental accounting, the treatment of loans between funds is guided by specific accounting principles and practices. When a governmental fund receives a long-term loan from another fund, it is not typically reported as a liability on the balance sheet of the borrowing fund. Instead, the loan is recognized as interfund transactions.

The loan does not constitute a direct inflow of financial resources that the fund can use to expand its services or make purchases; therefore, it is not classified as an other financing source. Instead, it reflects a transfer of resources that must be repaid in the future. Consequently, governmental funds do not record long-term liabilities for such loans.

Thus, the correct understanding is that neither option provided in the choices applies to the situation of reporting a long-term loan from one fund to another in the context of governmental accounting. The specific nature of this interfund activity means that it falls outside the typical classifications of the options presented.