Which of the following is true regarding capital projects funds?

• A. Encumbrances accounting is generally employed.
• B. Depreciation is recorded in the fund.
• C. They use a full accrual basis for financial reporting.
• D. Bond proceeds are not recorded in the fund.

Answer: (A)

Capital projects funds use encumbrance accounting to manage and control commitments for major capital expenditures. When a contract or purchase order is issued for a capital project, an encumbrance is recorded to show a future outlay of current resources; this helps prevent overspending and provides clear accountability for remaining resources. Depreciation is not recorded in the capital projects fund because these governmental funds focus on current financial resources, not on the long-term asset base. Depreciation belongs in the government-wide financial statements, where the full accrual basis is applied to the capital assets. Similarly, these funds do not operate on full accrual for their measurement; they use a modified accrual basis, recognizing revenues when measurable and available and expenditures when goods or services are received or encumbrances are incurred. Bond proceeds are indeed recorded in the fund when they are received, typically as other financing sources, and the related expenditures are tracked within the fund as the project progresses.