How are capital assets accounted for in fund financial statements compared with government-wide statements?

• A. Fund statements capitalize assets; government-wide statements record outlays as expenditures.
• B. Fund statements treat capital outlays as expenditures; government-wide statements capitalize and depreciate assets.
• C. Capital assets are not shown in fund statements.
• D. Both fund statements and government-wide statements capitalize all assets with no depreciation.

Answer: (B)

Fund financial statements focus on current financial resources and treat capital outlays as expenditures when assets are acquired. They do not capitalize these assets or record depreciation in those statements. Government-wide financial statements use accrual accounting, so capital assets are capitalized on the balance sheet and depreciated over their useful lives, with depreciation expense shown in the activities (income) statement. This is why the correct approach is that fund statements treat capital outlays as expenditures, while government-wide statements capitalize and depreciate assets.