Which financial statement uses accrual accounting to reflect costs?

Which financial statement uses accrual accounting to reflect costs?

• A. Balance Sheet
• B. Statement of Budgetary Resources
• C. Statement of Net Cost
• D. Statement of Cash Flows

Answer: (C)

Accrual accounting records costs when they are incurred, not when cash is paid. In government reporting, the Statement of Net Cost uses this accrual basis to show the true cost of programs for the period, including expenses like depreciation and other non-cash items, and then subtracts any program revenues to arrive at net cost. This provides a complete view of what the government spent to operate during the period, regardless of when cash changes hands. The Balance Sheet uses accrual accounting to show assets, liabilities, and net position at a point in time, but it isn’t designed to quantify program costs. The Budgetary Resources statement focuses on budgetary resources and obligations, which follows budgetary accounting rather than accrual cost accounting. The Statement of Cash Flows tracks actual cash inflows and outflows, not accrual costs.

Accrual accounting records costs when they are incurred, not when cash is paid. In government reporting, the Statement of Net Cost uses this accrual basis to show the true cost of programs for the period, including expenses like depreciation and other non-cash items, and then subtracts any program revenues to arrive at net cost. This provides a complete view of what the government spent to operate during the period, regardless of when cash changes hands.

The Balance Sheet uses accrual accounting to show assets, liabilities, and net position at a point in time, but it isn’t designed to quantify program costs. The Budgetary Resources statement focuses on budgetary resources and obligations, which follows budgetary accounting rather than accrual cost accounting. The Statement of Cash Flows tracks actual cash inflows and outflows, not accrual costs.