Question

Neighborville enters into a lease agreement for new copiers in all its city hall offices. In the governmental activities journal at the inception of the lease, it should record ________.

A. An expenditure.
B. A deferred outflow of resources.
C. A liability.
D. A prepaid expense.

Answer 1

Neighborville should record a liability in its governmental activities journal at the inception of a lease for new copiers, representing an obligation to make future payments.

Step-by-step explanation:

A student asked what Neighborville should record in its governmental activities journal at the inception of a lease for new copiers. The correct answer is C. A liability. When entering into a lease agreement, a government will typically recognize a liability for lease obligations on its governmental activities journal.

By contrast, an expenditure refers to the spending of government funds, usually measured over a fiscal year. A deficit occurs when expenditures exceed revenue over that same period. A deferred outflow of resources involves a consumption of net assets by the government that is applicable to a future reporting period.