Should the general fund of a financial reporting entity include the general fund of blended component units?

In the context of financial reporting for governmental entities, blended component units are typically included within the primary government's general fund. This is because blended component units are so closely related to the primary government that they are essentially a part of it. Therefore, the correct understanding is that the general fund would indeed normally include the general fund balances of the blended component units.

When considering why the other options do not fit, it's important to note that stating inclusion is conditional on being a non-profit entity (as suggested in one of the choices) does not align with the criteria used in governmental financial reporting. Additionally, the notion of inclusion only if legally mandated isn't comprehensive, as the integration of blended component units into the general fund is a standard accounting practice based on the relationship and governance structure, rather than legal stipulations. Moreover, excluding the general fund of blended component units while only considering the special revenue fund fails to capture the entirety of the financial position appropriately.

Thus, the general fund of a financial reporting entity should indeed include the general fund of blended component units to initially present a cohesive financial overview of the entity as a whole. This helps in providing a clearer picture of the financial resources and obligations that are ultimately under the control of the primary government.