What is the effect of interfund loans on government-wide financial statements?

Interfund loans represent transactions between different funds within a government entity. When analyzing government-wide financial statements, which present a consolidated view of the government's overall financial position, interfund loans do not impact reported revenues, expenditures, or net position.

This is because interfund loans do not actually increase economic resources or decrease liabilities; they simply involve the reallocation of resources from one fund to another. Therefore, the borrowing fund recognizes a liability while the lending fund recognizes an asset, leaving the overall position of the government entity unchanged.

Since these loans are essentially internal transactions within the government, they do not affect the total revenue or expenditures recorded in the government-wide financial statements. This characteristic ensures that the consolidated financial picture remains clear and does not reflect any artificial changes due to interfund transactions.