True or False: Governments may use agency funds as internal clearing accounts for accounting purposes.

The statement is true because agency funds are specifically designed to hold resources that belong to individuals or organizations outside of the government. They serve as custodial accounts where the government acts as an agent for others, managing their funds temporarily.

Using agency funds as internal clearing accounts allows governments to streamline their accounting processes. For example, when there are transactions that need to be settled between different departments or different entities, agency funds can effectively facilitate these transfers, ensuring that there is a clear record of transactions and balances.

This practice aligns with the overall goal of ensuring accountability and transparency in governmental financial reporting. By using agency funds in this manner, governments can efficiently manage their financial operations without mixing these transactions with their own funds, maintaining the integrity and specificity of the agency funds' purpose.