Which asset would be reported on the governmental funds balance sheet as a typical current asset?

• A. Inventories
• B. Capital assets
• C. Long-term investments
• D. Prepaid expenses

Answer: (A)

In governmental funds, the balance sheet is presented on a current financial resources basis, so assets commonly shown are those that will bring resources in the near term or be used up soon. Capital assets and long-term investments are reported on the government-wide statements, not in the governmental funds balance sheet. Inventories fit the typical current-asset role because they are goods on hand used in operations or held for sale and are expected to be consumed or converted to resources within the current period. Prepaid expenses, while they might be assets in other contexts, are not treated as a typical current asset in the governmental funds balance sheet under the modified accrual basis; they’re generally used to record expenditures when the related service or benefit is consumed. Therefore, inventories is the asset that best fits the description.