Modified Accrual Accounting

What is 'Modified Accrual Accounting'

Modified accrual accounting is an accounting method commonly used by government agencies that combines accrual-basis accounting with cash-basis accounting. Modified accrual accounting recognizes revenues when they become available and measurable and, with a few exceptions, recognizes expenditures when liabilities are incurred. This system divides available funds into separate entities within the organization to ensure that the money is being spent where it was intended.

BREAKING DOWN 'Modified Accrual Accounting'

The Government Accounting Standards Board, which is recognized as the official source of generally accepted accounting principles (GAAP) for state and local governments, establishes modified accrual accounting standards. To distinguish government accounting from business accounting, modified accrual accounting uses some different terminology than other accounting methods. For example, it uses the terms "excess" or "deficiency" instead of "net income", and "expenditures" instead of "expenses". The idea that government agencies need a different type of accounting system is accepted because the purpose of government organizations is significantly different from the purpose of both for-profit businesses as well as not-for-profit non-governmental organizations.

RELATED TERMS
  1. Modified Cash Basis

    An accounting method that combines elements of the two major ...
  2. Accrual Accounting

    Accrual accounting is an accounting method that measures the ...
  3. Cash Basis

    A major accounting method that recognizes revenues and expenses ...
  4. Cash Accounting

    An accounting method where receipts are recorded during the period ...
  5. Accruals

    Accounts on a balance sheet that represent liabilities and non-cash-based ...
  6. Accounting Method

    The method by which income and expenses are reported for taxation ...
Related Articles
  1. Investing

    How To Decipher Accrual Accounting

    Accrual accounting is an important method of measuring the performance and position of a company. Learn more on how its used.
  2. Investing

    What does Accrual Mean?

    In accrual-based accounting, transactions are recorded on the books as they occur, even if payment has not yet been received or made. Accruals represent liabilities and non-cash-based assets. ...
  3. Professionals

    What is Cash Basis Accounting?

    Cash basis accounting recognizes revenues and expenses at the time cash is paid or received.
  4. Investing Basics

    What Is A Trading Account?

    A trading account enables an investor to buy and sell securities.
  5. Executive Compensation

    Accountant: Job Description & Average Salary

    Discover what the job description of an accountant entails, along with education and training, salary and skills necessary for success.
  6. Investing Basics

    A Day In The Life Of An Accountant

    An analysis of the accountant profession, who becomes an accountant, what they do, where they work, and salary ranges.
  7. Forex Education

    Accounting Basics: Branches Of Accounting

    By Bob Schneider Accounting can be divided into several areas of activity. These can certainly overlap and they are often closely intertwined. But it's still useful to distinguish them, not ...
  8. Credit & Loans

    What is an Account Balance?

    An account balance represents the total amount of money in a financial account at any given moment.
  9. Professionals

    Accounting Research Manager: Job Description & Average Salary

    Learn about the average salary of an accounting research manager as well as the necessary skills, experience and education, and licenses to hold this position.
  10. Savings

    Explaining Checking Accounts

    A checking account is an account at a financial institution, usually a bank, that allows for deposits and withdrawals.
RELATED FAQS
  1. When are expenses and revenues counted in accrual accounting?

    Take an in-depth look at the treatment of revenues and expenses within the accrual method of accounting and learn why many ... Read Answer >>
  2. What is accrual accounting used for in finance?

    Read about the accrual method of accounting, its uses and rules, and why it is considered so important for investors, lenders ... Read Answer >>
  3. When is revenue recognized under accrual accounting?

    Discover how to report revenue under the accrual method of accounting and why a firm recognizes revenue even when cash has ... Read Answer >>
  4. How can I set up an accrual accounting system for a small business?

    Read about some of the steps a small business should follow when establishing an accrual accounting system to track revenues ... Read Answer >>
  5. Why does GAAP require accrual basis rather than cash accounting?

    Discover why GAAP requires the accrual basis for accounting rather than the cash basis, and learn why it is important for ... Read Answer >>
  6. What is the difference between accrual accounting and cash accounting?

    Understand the differences between the two basic methods of accounting commonly used by businesses: cash accounting and accrual ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center