Which statement accurately reflects the amount that must be reported as basic functional expense in the government-wide statement of activities?

The amount that must be reported as a basic functional expense in the government-wide statement of activities is accurately represented by the choice indicating that it encompasses all and only direct costs. This reflects the accounting principle that only those costs directly attributable to a specific function or program should be accounted for in this manner.

In government accounting, direct costs are expenses that can be specifically traced to a particular service, function, or program, such as salaries for program staff, materials used in providing the service, and any other costs that arise directly from the function being reported upon. These costs provide a clear picture of the financial resources expended in those distinct areas of government operation, enabling users of financial statements to understand the costs associated with specific functions.

Full cost, while it may seem comprehensive, includes indirect costs as well, which can lead to a distorted view of the expenses dedicated solely to programmatic activities. Therefore, since the primary focus is on evaluating the direct costs that are necessary for reporting functional expenses, this choice accurately aligns with the required reporting standards.