Question

If a government issues debt to finance capital acquisition by another government and the proceeds of the debt are a short time later delivered to the intended beneficiary government, how is the related long-term debt reflected in a governmental fund of the issuing government?

1) Other financing source and other financing use.
2) Other financing source and expenditure.
3) Revenue and expenditure.
4) It is not displayed on the face of the financial statements; however, it is disclosed in the notes to the financial statements.

Answer 1

The issuance and transfer of debt in a governmental fund are recorded as (option 1) 'Other financing source' and 'Other financing use,' respectively.

Step-by-step explanation:

When a government issues debt to finance capital acquisition by another government and the proceeds are soon after delivered to the intended beneficiary government, the related long-term debt in the governmental fund of the issuing government is reflected as an Other financing source and Other financing use.

This accounting treatment aligns with the governmental fund's focus on near-term inflows, outflows, and balances of spendable resources.

As such, the issuance of debt is considered an Other financing source, while the transfer to the beneficiary government is recorded as an Other financing use.

It's important to understand that this reflects only the transaction within the governmental funds, which operate on a modified accrual basis focusing on short-term fiscal resources.

Long-term liabilities, such as bonds, are not recorded within these funds but are instead reported in the government-wide financial statements, which utilize the accrual basis of accounting.

Detailed information on these long-term obligations is typically provided in the notes to the financial statements, which include comprehensive data about the nature and terms of the debt.