Modified Accrual Accounting

Modified accrual accounting is a method of accounting used by governments and other not-for-profit organizations. It is similar to accrual accounting, but it has some important differences.

One difference is that modified accrual accounting does not recognize revenues until they are available to be spent. This means that revenues that are earned but not yet collected are not recognized in the financial statements. Another difference is that modified accrual accounting does not recognize expenses until they are incurred. This means that expenses that are paid in advance are not recognized in the financial statements.

Modified accrual accounting is used by governments and other not-for-profit organizations because it provides a more accurate picture of their financial condition. It does this by recognizing revenues and expenses when they are actually available to be spent or incurred, rather than when they are earned or paid. This makes it easier for users of financial statements to understand the financial condition of a government or not-for-profit organization.

Modified accrual accounting is not without its critics. Some people argue that it is not as accurate as accrual accounting because it does not recognize all revenues and expenses when they occur. Others argue that it is too complex and difficult to understand.

Despite these criticisms, modified accrual accounting is still the most widely used method of accounting for governments and other not-for-profit organizations. It is a well-established method that provides a fair and accurate picture of financial condition.

Here are some additional details about modified accrual accounting:

• It is based on the concept of fund accounting. Funds are separate accounting entities that are used to track the financial activities of a government or not-for-profit organization.
• There are two types of funds: governmental funds and proprietary funds. Governmental funds are used to account for the activities of the government itself. Proprietary funds are used to account for the activities of businesses that are owned by the government.
• Modified accrual accounting is used for governmental funds. Proprietary funds use accrual accounting.
• Modified accrual accounting is required by the Governmental Accounting Standards Board (GASB).

Modified accrual accounting is a complex topic. If you have any questions about it, you should consult with a qualified accountant.