A City's Comptroller Is Distraught Because Depreciation Cannot Be Recorded

Essay

A city's comptroller is distraught because depreciation cannot be recorded in a general fund. Moreover, for political reasons the city council never permits the general fund to have a substantial surplus balance. As a consequence the city is unable to "save" resources to replace aging capital assets. The comptroller has heard that it is possible indirectly to charge depreciation in a general fund by transferring capital assets to an internal service fund and correspondingly to build up a cash reserve to replace the capital assets. Is the comptroller correct? If so, explain how an internal service fund can be used to charge depreciation in the general fund and thereby create a cash reserve of what would otherwise be general fund assets.