Final answer:
The internal service fund should record the charges made to the Parks Department for vehicle rentals in the 'Billings to Departments' account, which reflects the revenue from services provided to other city departments.
Step-by-step explanation:
When the internal service fund, such as the City of Crescent Hill's central motor pool, charges one of the city's departments for vehicle rentals, the appropriate account to record these charges is Billings to Departments.
An internal service fund operates like a business, providing services to other departments of the organization on a cost-reimbursement basis. These transactions are not transfers of funds between accounts but rather internal sales transactions. Therefore, the use of Interfund Transfers In is incorrect because these transactions are not transfers but exchanges of value. Similarly, Interfund Exchanges is not used because this term does not specifically refer to charges for services provided. Finally, Cost of Providing Rentals to Other Funds and Units represents the expense side of the transaction, not the income side that will be recorded by the motor pool upon providing the service.
The Billings to Departments account reflects the revenue realized from providing services and is the standard accounting practice for internal service funds that operate like distinct entities offering services to other parts of the organization. This mechanism ensures that each department's financials accurately reflect the costs of their operations, including the costs for using the centrally managed resources, such as a motor pool.