When the debt service fund makes a lease payment on an unpaid lease obligation, which expenditure category is debited?

• A. Expenditures—Principal of Lease Obligation
• B. Expenditures—Interest of Lease Obligation
• C. Expenditures—Lease Expense
• D. Expenditures—Capital Lease

Answer: (A)

In a debt service fund, payments to service long‑term obligations are recorded as expenditures and are split into principal and interest components. The portion of the payment that reduces the outstanding lease obligation is the principal, so it is debited as Expenditures—Principal of Lease Obligation. If there’s an interest portion, that would be debited as Expenditures—Interest of Lease Obligation. A lease expense entry or a capital lease category isn’t appropriate for this debt service payment in a debt service fund, because the fund specifically tracks debt service payments and the principal reduces the long‑term liability while interest reflects the cost of borrowing. Therefore, the principal component is the correct debit.