Which of the following items would not appear in a statement of revenues, expenditures, and changes in fund balances prepared for a governmental fund?

• A. Salaries
• B. Capital outlay expenditures
• C. Revenues
• D. Depreciation expense

Answer: (D)

The main idea is that governmental fund statements focus on current financial resources and are prepared on a modified accrual basis. They record revenues when measurable and available, and expenditures when resources are used. Salaries are clearly a current operating expenditure and reduce the fund balance, so they appear as expenditures. Capital outlay expenditures are also reported as expenditures in the fund statements, because the cash outlay for acquiring a capital asset is a current use of resources. Revenues are included as provided by the jurisdiction’s activities.

Depreciation expense, however, represents the allocation of the cost of a capital asset over its useful life. It does not involve a current outflow or inflow of resources in the period, so it is not recorded in the governmental fund statement. Depreciation is recorded in the government-wide (full accrual) financial statements, not in the fund-level statements.