A liability is recorded in governmental funds when:

• A. When goods or services are received, and the invoice is vouchered
• B. When cash is disbursed
• C. When the obligation is incurred
• D. When performance obligations are satisfied

Answer: (A)

In governmental funds, the accounting uses the modified accrual approach, so a liability is recognized when the government has a current obligation and the expenditure is measurable and available to pay from current resources. That moment is typically when goods or services are received and an invoice is vouchered—the government has obtained the benefit and has a valid claim for payment. Recording the liability at this point ensures expenditures reflect the use of current resources for the period, rather than waiting until cash is actually disbursed. If you wait until cash is paid, or wait until performance obligations are satisfied, you’d be mismatching the timing under the modified accrual basis. Similarly, simply “the obligation is incurred” is too broad without the receipt of goods/services and a formal voucher.