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We have a mortgage loan that I have recorded as a long-term liability in our General Fund. Recently I used the transfer accounts to transfer money from our Building Fund into our General Fund for making a principal payment. In the General Fund, I credited the checking account and debited the Mortgage Loan liability account. When monthly reports are done, the General Fund Income & Expense Statement uses the amount transferred in from the Building Fund in computing excess income/expense. Since we use this as a cash flow report, this doesn't give an accurate appraisal since the money paid against the loan liability account does not offset the money transferred in. Any recommendations? Would it be ok to cut the check from the Building Fund checking account but debit the loan liability account in the General Fund? The debit and credit would be separate funds. Would that be a problem?

If you want to pay the loan from the building fund, that will work.

Just to make things easier to keep track of, I would transfer the outstanding amount of the loan to the building fund, first:
DB 01-2130-000 mortgage principle loan $52,633.44
CR 01-9130-000 transfer loan $52,633.44

DB 03-9130-000 transfer loan $52,633.44
CR 03-2130-000 mortgage principle loan $52,633.44

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Then, make the mortgage payment in the building fund:
CR 03-1110-000 building checking $850.00
DB 03-2130-000 mortgage principle loan $552.34
DB 03-5810-000 interest expense $297.66

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At the end of each month, you may want to transfer the interest expense back to the General Fund, because that should be part of your cash flow analysis.