Which of the following statements concerning the reporting of expenses on the statement of activities is true?

• A. Program Revenues Are Reported Before Expenses.
• B. Expenses Are Reported Before Program and General Revenues.
• C. Expenses Are Reported After Program Revenues.
• D. Program and General Revenues Are Reported Before Expenses.

Answer: (B)

On the government-wide statement of activities, the costs of government functions are shown first. Those expenses are then reduced by program revenues (charges for services, grants, and contributions tied to specific programs) to reveal the net cost of each function. After that, general revenues (such as taxes and unrestricted miscellaneous revenue) are added to determine the overall change in net position.

This ordering—expenses first, then program revenues that offset those expenses, followed by general revenues—best communicates the true cost of delivering programs and how those costs are financed. For example, if a function has expenses of 100 and program revenues of 40, the net cost of that function is 60; adding general revenues of 30 would produce a total increase in net position of 90.