Modified Accrual Accounting

Concept

When to Recognize Revenue

Governmental funds use modified accrual accounting. Revenue is recognized when it is both MEASURABLE and AVAILABLE. Available means collectible within the current period or soon enough afterward to pay current liabilities (typically 60 days). This differs from full accrual where revenue is recognized when earned.

Example

Property Tax Revenue

A city levies $1,000,000 in property taxes. It estimates $20,000 will be uncollectible. Recognize: $980,000 in revenue (measurable and available) Debit: Property Taxes Receivable $1,000,000 Credit: Revenue $980,000 Credit: Allowance for Uncollectible Taxes $20,000 Taxes collected after the availability period are reported as deferred inflows.

Key Point

Expenditures, Not Expenses

Governmental funds report expenditures (not expenses). Expenditures are recognized when the fund liability is incurred. Capital assets are expensed entirely when purchased — there is no depreciation in governmental fund statements.

Fund Accounting Basics

Government Financial Statements

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Practice Questions