Grants restricted to operating or capital uses in fund statements are classified as follows:

Grants restricted to operating or capital uses in fund statements are classified as follows:

• A. Operating-use grants flow to Capital Projects Fund; capital-use grants flow to General Fund; in government-wide statements, revenue is recognized and the related assets or depreciation are recorded.
• B. All grants are recognized as revenue in the government-wide statements only.
• C. Operating-use grants typically flow to Special Revenue or General Fund; capital-use grants flow to Capital Projects Fund; in government-wide statements, revenue is recognized and the related assets or depreciation are recorded.
• D. All grants are recognized only as revenue in government-wide statements.

Answer: (C)

Grants have two layers of reporting: fund statements (which use modified accrual for current financial reporting) and government-wide statements (which use full accrual). When a grant is restricted for operating use, it funds ongoing services and is recorded in the appropriate operating fund—typically Special Revenue or General Fund—in the fund statements. When a grant is restricted for capital use, it finances long-lived assets and is recorded in the Capital Projects Fund in the fund statements. In government-wide statements, the focus shifts to the economic resource underlying the activity. Revenue from operating grants is recognized, just like other operating revenues, but it does not create a capital asset. Revenue from capital-use grants is recognized and the corresponding capital asset is recorded (with depreciation over the asset’s life) in the government-wide statements. This alignment shows how the grants support either current operations or capital assets, and how the government-wide statements reflect the asset and its consumption over time. That’s why the correct description states that operating-use grants flow to Special Revenue or General Fund, capital-use grants flow to Capital Projects Fund, and, in government-wide statements, revenue is recognized and the related assets or depreciation are recorded. The other options misstate fund flows or where grants are recognized.

Grants have two layers of reporting: fund statements (which use modified accrual for current financial reporting) and government-wide statements (which use full accrual). When a grant is restricted for operating use, it funds ongoing services and is recorded in the appropriate operating fund—typically Special Revenue or General Fund—in the fund statements. When a grant is restricted for capital use, it finances long-lived assets and is recorded in the Capital Projects Fund in the fund statements.

In government-wide statements, the focus shifts to the economic resource underlying the activity. Revenue from operating grants is recognized, just like other operating revenues, but it does not create a capital asset. Revenue from capital-use grants is recognized and the corresponding capital asset is recorded (with depreciation over the asset’s life) in the government-wide statements. This alignment shows how the grants support either current operations or capital assets, and how the government-wide statements reflect the asset and its consumption over time.

That’s why the correct description states that operating-use grants flow to Special Revenue or General Fund, capital-use grants flow to Capital Projects Fund, and, in government-wide statements, revenue is recognized and the related assets or depreciation are recorded. The other options misstate fund flows or where grants are recognized.