Which of the following would be reflected in the operating statement of a proprietary fund?

• A. Accrual of interest expense
• B. Depreciation expense
• C. Capital contributions
• D. Excess of revenues over expenses in government funds

Answer: (A)

Proprietary funds use accrual accounting and their operating statement shows the expenses and revenues as they are incurred, much like a business. Interest expense is a regular operating expense that arises from the fund’s debt and is recorded in the period incurred, so it clearly belongs on the operating statement. Capital contributions are financing sources that typically appear separately as nonoperating items or changes in net position, not as operating revenues or expenses. The phrase “excess of revenues over expenses” is a concept tied to government funds’ reporting, not to the proprietary fund’s operating statement. So the accrual of interest expense best fits as something reflected in the operating statement of a proprietary fund.