Final answer:
Governmental funds report debt issued to finance capital assets as 'other financing sources,' while in government-wide statements, it is recorded as a long-term liability.
Step-by-step explanation:
When a government issues debt to finance capital acquisition, the related long-term debt should be reported by the governmental fund receiving the proceeds as other financing sources. This approach is consistent with the governmental fund accounting model, which distinguishes operating transactions from other financing sources such as long-term debt issuances. Typically, the governmental funds follow a modified accrual accounting basis, which recognizes debt proceeds as other financing sources and not as revenues.
In contrast, the full accrual accounting used in the government-wide financial statements reports long-term debt as a liability.The long-term debt related to the government's capital acquisition should be reported as long-term liability by the governmental fund that receives the proceeds of the debt. This is because the government is obligated to repay the debt over a period of more than one year.