In a reconciliation of change in fund balances-governmental funds to change in net position-governmental activities, which one of the following is a correct reconciliation item?

Question

Quizplus · Accepted Answer

Principal payments on long-term debt are added back in the reconciliation because these payments reduce fund balances in governmental funds but do not affect the net position of governmental activities on the government-wide statements. This adjustment is necessary because the governmental funds use the modified accrual basis of accounting, which recognizes debt payments as expenditures, whereas the government-wide statements use the accrual basis of accounting, under which these payments reduce the liability rather than impact the net position directly.

In a Reconciliation of Change in Fund Balances-Governmental Funds to Change