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Glossary/Government, nonprofit and ERISA

Modified accrual basis of accounting

Modified accrual is the basis governments use for governmental fund statements, recognizing revenues when measurable and available to pay current liabilities and expenditures when the related liability is incurred, with exceptions.

CORAA TeamUpdated November 5, 2026

Definition

Governmental funds use the current financial resources measurement focus and the modified accrual basis. Revenues are recognized when they are measurable and available, meaning collectible soon enough after year end to pay liabilities of the current period. Expenditures are generally recognized when the fund liability is incurred, with exceptions such as debt service, which is recorded when due. Capital outlay is an expenditure, not an asset, in these fund statements. Government-wide statements use full accrual, so a reconciliation connects the two.

Why it matters in an audit or review

Auditors test the availability period the government applies to property taxes, grants, and sales taxes, and check that it is applied consistently. They test cutoff for expenditures, review the reconciliations between fund and government-wide statements, and confirm that capital assets and long-term debt are excluded from governmental funds.

Example

Illustrative: a county levies $5,000,000 of property tax. Collections within its availability period total $4,800,000, and the remaining $200,000 is expected after that window. The fund recognizes $4,800,000 as revenue and reports $200,000 as a deferred inflow of resources, while the government-wide statements recognize the full $5,000,000.

Common mistakes

  • Using a different availability window for different revenue types without a policy.
  • Recording a capital purchase as an asset in a governmental fund.

Sources

  • GASB Statement No. 34 and GASB Codification Section 1600, Basis of Accounting: https://www.gasb.org

Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error

Standards

GASB 34

Related terms

  • Accrual basis accounting
    Accrual basis accounting records revenue when earned and expenses when incurred, regardless of when cash moves, and is the foundation of US GAAP financial statements for operating entities.
  • GASB Statement No. 34
    GASB Statement 34 created the modern financial reporting model for state and local governments, adding government-wide statements, fund statements, management's discussion and analysis, and required supplementary information.
  • Governmental audit
    A governmental audit examines the financial statements of a state or local government under GAAS and, usually, GAGAS, using GASB standards and a reporting model with opinion units for each fund type and major fund.

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