Financial Management



Financial Management

Answer 1: Possible Types of Interfund Transactions

Interfund transaction means transfer of funds from one department to another department, reporting to the same authority, or it could be explained as transfer of funds from one account to another account, both made for different particular purposes, by the organization for any unavoidable reason. There are basically two possible types of interfund transactions, which further divide into sub-types.

Reciprocal Interfund

Interfund transactions which are due to exchange and exchange- like activities. These are recorded as expenses or revenues in Income Statements and receivables or payables in the statement of equity. These are the activities similar as done between different organizations, when two organizations, controlled by the same authority, perform any service or grant any loan to each other, and consideration is required in return, such activities are called reciprocal interfund activities. Such activities are divided into interfund loans and interfund services. Where, interfund loan are provided as loans between funds, with an obligation of repayment and these loans should only be considered as receivables or payables in the statement of equity. On the other hand, interfund services include the sale and purchase of goods and services between funds and the consideration against such services and goods should be in accordance with their market value.

Nonreciprocal Internal

These are the transfer of funds which are not due to an exchange or exchange like transaction. These are the transactions which are taken place, when two organizations, controlled under the same authority, transfer funds into each other accounts or perform services or grant loans which are not paid back at that particular time and reimbursed afterwards. These transactions did not include a consideration in return. Such transactions have further two types i.e. interfund transfers and interfund reimbursements. Interfund transfers include the transfer of cash or services by one organization to another organization; under the control of same authority any obligation of repayment or equivalent return, and these transfers are only treated as other financing sources or uses in statement of funds. Whereas, interfund reimbursements include the repayments to funds against their respective expenses; which are incurred in the past, and these repayments should not be recorded as revenues by the receiver of reimbursements (Gross, McCarthy, and Shelmon, 2005).

Answer 2: Strike Fund

In case of any fund maintained by steel workers union or any other body for the purpose of paying workers on strike or for any other particular purpose, the not for profit organization cannot use the funds for its operational purposes or for capital advancements. Because funds donated by a donor with imposed restrictions, whether implied or expressed, cannot be used against such donor specified restrictions. If, and only if, a donor donates his/her funds without any pre specified conditions only then a not for profit organization, to whom funds are granted can, use funds donated by a donor for any operational or capital advancement purposes or hold the funds for any particular purpose. However, only external funds, including contracts; endowment income; and ...