Which type of expenditures must be eliminated in the government-wide statement of activities?

In the government-wide statement of activities, all expenditures must be eliminated because this statement is designed to provide a consolidated view of the government's overall financial position and performance. Under the accrual basis of accounting, which is used in government-wide financial statements, expenditures are recorded in the period when the goods or services are incurred, regardless of when the cash flows occur.

Eliminating all expenditures allows for a clearer representation of the net position, as it includes only the operational activities and long-term assets and liabilities, rather than short-term transactional impacts that may not accurately reflect the government's ongoing financial health. This consolidation aids in providing a complete picture of the government's financial activities over time, ensuring that the statement reflects the actual economic events rather than just cash flows or budgetary figures.

In the context of the other options, while capital outlay expenditures and debt service principal payments are specific types of expenditures that could require elimination in different financial contexts, they do not encompass the full range of activities that must be addressed. Regarding prior period revenues and expenditures, these would typically not be part of the current year's operating results and hence need to be excluded from the current reporting to avoid distortions. Therefore, the option indicating that all expenditures must be eliminated aligns with the concept of producing a