At the beginning of the year, a special revenue fund purchases equipment for $400,000 in cash. The equipment has a 5-year life, straight-line. The fund still holds the equipment at year-end. How is this equipment reported in the special revenue fund's operating statement for the year?

Question

Quizplus · Accepted Answer

Special revenue funds, which are a type of governmental fund, report capital outlays such as equipment purchases as expenditures in the period they are acquired. They do not use the accrual basis method of recognizing expenses over the life of the asset (depreciation) like businesses do. Therefore, the entire cost of the equipment ($400,000) is reported as an expenditure in the year it is purchased.

At the Beginning of the Year, a Special Revenue Fund