At the inception of a lease for equipment, the capital projects fund entry will include which of the following?

• A. A debit to Expenditures—Lease
• B. A credit to Other Financing Sources—Lease Agreement
• C. A debit to Other Financing Sources—Lease Agreement
• D. A credit to Lease Payable

Answer: (B)

In a capital projects fund, a capital lease is treated as a financing arrangement. At the lease’s inception, the fund records the inflow of resources from the lease as an Other Financing Source, not as a payable or as a direct debit to a typical expenditure. The offsetting entry is a corresponding outlay to acquire the asset (recorded as an expenditure—capital outlay or similar). Therefore, the appropriate entry is a credit to Other Financing Sources—Lease Agreement, reflecting the financing source provided by the lease. The other options would misstate the nature of the transaction for the fund: they would either debit an expenditure account instead of recognizing the financing source, or record a payable that the fund does not recognize.