How are grants reported in governmental funds?

Grants in governmental funds are reported as revenue when they are earned and the eligibility requirements are met. This means that for a grant to be recognized as revenue, the government entity must have satisfied the conditions that justify the receipt of those funds, such as meeting specific criteria laid out in the grant agreement.

Once the conditions are fulfilled—often involving specific activities or outcomes that need to be achieved—revenue recognition occurs. This aligns with the accrual basis of accounting that governmental entities follow, where revenues are recognized in the period they are earned rather than when the cash is received.

This treatment ensures that financial statements reflect the entity's financial position accurately and in accordance with the applicable accounting standards, such as the Governmental Accounting Standards Board (GASB) regulations. Therefore, option C captures the essence of how governmental entities account for grants, ensuring that the timing of revenue recognition corresponds with compliance and performance.