How should the proceeds of refunding bonds used to redeem debt be categorized in the statement of revenues, expenditures, and changes in fund balances?

When proceeds from refunding bonds are used to redeem existing debt, they are categorized as "Other financing use" in the statement of revenues, expenditures, and changes in fund balances. This is because the proceeds from the refunding bonds are not classified as revenue, nor do they represent expenditures in the traditional sense. Instead, they reflect a financing activity that results in the generation of new debt to produce cash for settling prior obligations, which fits the "Other financing use" classification.

In government accounting, this category often includes transactions that do not affect the governmental fund’s operating results directly. By treating the refunding bond proceeds this way, it clearly indicates that these funds are being used for financing purposes, essentially maintaining a clear distinction between operating revenues/expenses and financing activities.

The classification as an expenditure would imply a reduction in available resources or operating funds, which does not accurately reflect the nature of the transaction involving refunding bonds. Similarly, a "Special item" typically refers to transactions or events that are unusual and infrequent or significant. The routine activity of refunding debt does not meet the criteria for this classification.

Thus, the categorization of the proceeds as "Other financing use" effectively communicates the nature of the transaction and its impact on the fund's