Which statement about the governmental fund statement of revenues, expenditures, and changes in fund balances is true?

• A. It includes depreciation expense.
• B. It includes revenues, expenditures, and changes in fund balances.
• C. It includes long-term liabilities.
• D. It excludes interfund transfers.

Answer: (B)

Governmental fund statements are prepared on a current-financial-resource basis and present a statement of revenues, expenditures, and changes in fund balances to show how the fund’s balance changes during the period. This statement includes the fund’s revenues and expenditures and the resulting change in fund balance, and it also shows other financing sources and uses, such as interfund transfers, which affect the overall change in the fund balance. Depreciation expense is not included because the fund statements skip depreciation of capital assets, focusing instead on current resources; depreciation belongs in the government-wide, full accrual statements. Long-term liabilities aren’t presented in this fund statement since they’re addressed in the government-wide statements. Therefore, the statement that includes revenues, expenditures, and changes in fund balances is the true description.