Final answer:
Governmental activities accounts decrease long-term liabilities and record interest expenditures when the debt service fund pays principal and interest on long-term debt.
Step-by-step explanation:
When the debt service fund makes a payment of principal and interest on an outstanding long-term debt, the governmental activities accounts record a reduction in long-term liabilities and an expenditure for the interest payment. Public debt, like the one managed through such funds, includes both money the government owes to the public and debts held by government trust funds.
This distinction is crucial for understanding the impact of public debt and government borrowing on the economy. Governmental entities often borrow by issuing Treasury bonds, notes, and bills, which are contractual promises to repay with interest. The payment of these debts must be approached with fiscal responsibility to maintain economic stability.