How is the journal entry for leases other than short-term leases and contracts that transfer ownership recorded in a governmental fund?

The correct answer reflects the accounting treatment for leases in governmental funds that are not classified as short-term leases or those that transfer ownership of the leased property.

In governmental accounting, leases are usually recognized as a capital asset if the lease meets specific criteria, such as transferring ownership at the end of the lease term or having a significant portion of the asset's useful life used during the lease term. When this occurs, the government entity treats the lease similarly to a capital acquisition.

The journal entry involves debiting capital outlay expenditure, which signifies the acquisition of the capital asset funded through the lease. This debit represents the outflow of resources to obtain the asset for public use. Simultaneously, crediting other financing sources reflects that the financing for the asset acquisition is derived from leases, which is a form of long-term financing available to governments rather than direct revenues.

This treatment underscores the principle in governmental accounting that significant assets acquired should be recognized on the balance sheet, and the corresponding financing source noted, providing a clear picture of the government's capital investments and their funding sources.

Other options do not adequately reflect the accounting principles governing leases in a governmental context. For instance, recognizing lease expense and cash does not account for the asset recognition aspect, and debiting expenditures