Under which basis of accounting for a government should revenues be recognized in the period when they are measurable and available?

• A. Accrual basis
• B. Modified accrual basis
• C. Cash basis
• D. None of the above

Answer: (B)

The key idea is that governmental funds use a modified accrual approach for revenue recognition. Under this basis, revenues are recorded in the period when they are both measurable (the amount can be determined) and available (collectible within the current period or soon enough to finance current expenditures). This timing ties revenue recognition to the ability to use those resources in the near term, rather than to when cash is received or when the goods or services are earned.

For example, property taxes levied but not yet collected are recognized as revenue when they become available for financing current year expenditures, not when they are levied or when cash is received. If revenue is not available in the period, it is deferred to a future period.

This is distinct from accrual basis (revenue recognized when earned, regardless of cash availability) and cash basis (revenue recognized when cash is received). In government accounting, the modified accrual basis is the appropriate framework for governmental fund statements because it emphasizes current financial resources.