Depreciation of capital assets would not be appropriate to record in which fund?

• A. Debt Service Fund
• B. Capital Projects Fund
• C. General Fund
• D. Enterprise Fund

Answer: (B)

Depreciation represents the consumption of capital assets over time and is recorded in government-wide or enterprise fund reporting, which use accrual accounting. Governmental funds (such as the General Fund, Debt Service Fund, and Capital Projects Fund) use the modified accrual basis and focus on current financial resources, so they do not record depreciation for capital assets. The Capital Projects Fund specifically is designed to accumulate resources for constructing or purchasing major capital assets and does not reflect ongoing depreciation in that fund. The related depreciation would appear in the government-wide statements or in an Enterprise Fund, which uses accrual accounting for business-type activities. Therefore, depreciation would not be recorded in the Capital Projects Fund.