Which amount is recorded in the General Fund for the snowplow lease at inception?

Which amount is recorded in the General Fund for the snowplow lease at inception?

• A. 25,000
• B. 870,500
• C. 0
• D. 845,500

Answer: (C)

In governmental fund accounting under the modified accrual basis, long-term assets and liabilities (like capital leases) are not recorded in the General Fund at inception. The General Fund recognizes current-period financial resources and expenditures, not the long-term financing of a noncurrent asset. A capital lease is a long-term obligation that will be reflected in the government-wide statements, but at the moment the lease is entered, the General Fund has not yet used current resources to acquire the asset. Therefore, at inception no amount is recorded in the General Fund. The effect will appear later when payments affect the fund’s current resources or when debt service is due.

In governmental fund accounting under the modified accrual basis, long-term assets and liabilities (like capital leases) are not recorded in the General Fund at inception. The General Fund recognizes current-period financial resources and expenditures, not the long-term financing of a noncurrent asset. A capital lease is a long-term obligation that will be reflected in the government-wide statements, but at the moment the lease is entered, the General Fund has not yet used current resources to acquire the asset. Therefore, at inception no amount is recorded in the General Fund. The effect will appear later when payments affect the fund’s current resources or when debt service is due.