How should an interfund loan be classified by the lender fund?

When classifying an interfund loan by the lender fund, it is considered a balance sheet item. This classification reflects the nature of the loan transaction, where the lender fund essentially provides funds to another fund, creating a receivable on its balance sheet.

In this context, the interfund loan represents a financial asset for the lender fund, reflecting the expectation of receiving repayment in the future. The classification as a balance sheet item captures the essence of the transaction by acknowledging the claim the lender fund has over the borrowed funds. This aligns with standard accounting principles, which require that loans made between funds be recorded in a manner that accurately reflects their financial position.

Each of the other classifications does not accurately convey the characteristics of the transaction. For example, classifying the loan as an investment would imply a long-term or permanent commitment, which is typically not the case with interfund loans that are short-term and meant to be repaid. Classifying it as an other financing source does not accurately represent the nature of the asset, as it is not a source of revenues or resources for operations. Lastly, classifying it as revenue would be inappropriate, as revenue pertains to inflows from primary business operations rather than the repayment of a loan.