Depreciation is not recorded in which fund?

• A. Depreciation is not recorded in the Capital Projects Fund
• B. Depreciation is recorded in the Capital Projects Fund
• C. Depreciation is recorded in the General Fund
• D. Depreciation is recorded in the Enterprise Fund

Answer: (A)

Depreciation reflects the wear and use of capital assets over time, and it belongs in the statements that show the government's overall financial position or in funds that account for a business-type activity. In governmental funds, like the Capital Projects Fund, the focus is on current financial resources and cash flows for new projects. It uses modified accrual accounting, so expenditures are recorded when resources are actually consumed, not the ongoing depreciation of assets. Since the assets themselves are accounted for in the government-wide statements (and in the Enterprise Fund for business-type activities), depreciation is not recorded in the Capital Projects Fund. Therefore, depreciation is not shown there, while it would appear in the government-wide financial statements and in the Enterprise Fund.