Final answer:
Debt service payments for a capital lease in a General Fund are reported as reductions in liability and expenditures. The leased asset is recognized as a capital asset, and the lease obligation as a long-term liability in governmental accounting.
Step-by-step explanation:
When payments are made for debt service payments related to a capital lease, a General Fund will typically report these payments as reductions in liability and expenditures.
The accounting for a capital lease in governmental accounting, which follows fund accounting principles, involves recognizing the leased asset as a capital asset and the lease obligation as a long-term liability.
Over the life of the lease, as each payment is made, a portion of the payment is applied to the liability (reducing it), and a portion is recognized as interest expense, reflecting the cost of borrowing.
When making debt service payments for a capital lease, a General Fund will report decreases in cash as the payments are made. This is because the General Fund uses cash to make the lease payments.
Additionally, the General Fund will also report decreases in fund balance as the lease payments reduce the available resources in the fund.