Which statement is true regarding the preparation of government-wide financial statements?

The preparation of government-wide financial statements includes both direct and indirect costs to provide a comprehensive view of the financial activities of a governmental entity. By incorporating direct costs, such as salaries and materials that are directly attributable to specific services or functions, along with indirect costs, like administrative expenses that support the overall functioning of the organization, these financial statements reflect the total cost of delivering services to the public.

Using both types of costs ensures that stakeholders receive an accurate representation of the financial health and operational efficiency of the governmental body. This is important for transparency and accountability, as it allows for better decision-making and assessment of resource allocation. Thus, recognizing both indirect and direct costs is essential for a complete understanding of the financial position and performance of government entities.