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Indian River County, Florida Notes To Financial Statements Year Ended September 30 , 2003 NOTE 2 - RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS - Continued B . Explanation of Differences Between Governmental Fund Operating Statements and the State- ment of Activities The "net change (decrease) in fund balances" for governmental funds ($4 , 049, 146) differs from the "change in net assets" for governmental activities ($38,208,374) reported in the statement of activities . The differences arise primarily from the long-term economic focus of the statement of activities versus the current financial resources focus of the governmental funds . The effect of the differences is illustrated below. Capital related items When capital assets that are to be used in governmental activities are purchased or constructed, the resources ex- pended for those assets are reported as expenditures in governmental funds. However, in the statement of activities, the costs of those assets is allocated over their estimated useful lives and reported as depreciation expense . As a result, fund balances decrease by the amount of financial resources expended, whereas net assets decrease by the amount of depreciation expense charged for the year. Capital outlay $ 49 , 073 , 587 Depreciation expense I ( 10 , 044 , 808 ) Difference $ 39, 0281779 t y Repayments of bond principal and capital lease principal are reported as an expenditure in the governmental funds and, thus , have the effect of reducing fund balance because current financial resources have been used. However, the principal payments reduce the liabilities in the statement of net assets and do not result in an expense in the statement of activities. Bond principal payments made $ 2 , 5459000 Capital lease principal payments made 336,492 Total $ 2, 881 ,492 Some expenses reported in the statement of activities do not require the use of current financial resources , therefore, are not reported as expenditures in governmental funds . Net change in compensated absences $ ( 136,466) Governmental funds report interest expenditures based on when they are paid. The statement of activities reports interest expense as it is incurred . This is the net number of the previous year accrual and the current year accrual . Interest payable : Net accrued bond interest payable $ 71 , 712 Net accrued capital lease interest payable 17 476 Net adjustment ' $ 89 , 188 52