Which of the following is not true for capital projects funds?

• A. Revenues and expenditures are recognized on the modified accrual basis.
• B. Capital projects funds use a Construction Work in Progress account to record costs until a project is completed.
• C. Bond proceeds and capital grant revenues are recorded in the fund but long-term debt is not recognized until matured.
• D. Encumbrances accounting is generally employed.

Answer: (C)

Capital projects funds use the modified accrual basis, tracking resources available for capital construction and recognizing revenues only when they’re available. They accumulate project costs in a Construction Work in Progress (CWIP) account so the fund shows the resources tied to a specific project but doesn’t issue capital assets until the government-wide statements record them. Bond proceeds and capital grants are indeed recorded in the fund as financing sources, and encumbrance accounting is typically used to keep track of commitments and unperformed contracts.

The statement that is not true describes long-term debt as not being recognized in the fund until it matures. In reality, long-term debt is not reported in the capital projects fund’s balance sheet at all; the liability is not carried in the fund, and it is reflected in the government-wide statements, usually when the debt is incurred and the project asset is recorded. The fund records the bond proceeds as a financing source when issued, but the long-term obligation itself appears in the broader government-wide financial statements, not as a fund accounting entry tied to maturity. This distinction is why that option isn’t correct.