Question

During our study of governmental funds, we were introduced to a new accounting treatment called modified accrual accounting. Please identify one accounting treatment that differs between accrual accounting and modified accrual accounting. Explain why you feel the modified accrual treatment is better or worse for the readers of the financial statements.

Post needs to be 100-200 words.

Answer 1

Currently, the modified accrual accounting is widely used government agencies. This method accounting uses revenues are recorded on the basis of accrual basis accounting whereas expenditures are recorded on the cash basis accounting. Revenues are recognized, when they actually become due and expenditures are recorded when they are actually paid.

The one accounting treatment that differs between accrual accounting and modified accrual accounting is the recording of expenditures, which is in modified accrual accounting is done on the basis of cash basis accounting, whereas in the accrual accounting, both revenues and expenditures are recorded on the basis of accrual basis.

In the modified accrual treatment, short term financial events are recorded on the cash basis whereas long term financial events are recorded on the accrual basis. In this way, the comparability of financial statements improves the distribution of revenues and expenses. Thus, it is better for the readers of the financial statements.