Governmental accounting

Governmental funds use the modified accrual basis, recognizing revenues when measurable and available and expenses when incurred, which differs from full accrual that records all transactions when earned or incurred. Choice A (full accrual) applies to government-wide statements, not fund statements; cash-basis (choice C) would ignore receivables, violating the fund reporting requirements.

Government‑wide financial statements are prepared using the full accrual basis, which records revenues when earned and expenses when incurred, providing a comprehensive view of assets, liabilities, and net position. Modified accrual (A) applies only to fund statements, cash basis (C) and budgetary basis (D) lack accrual recognition, thus they are wrong.

Governmental funds use the modified accrual basis, recognizing revenues when measurable and available and expenses when incurred, which differs from full accrual that records all transactions when earned or incurred. A diagram for this topic isn't available yet — the worked example below walks the same reasoning step by step.

• !Modified accrual (A) applies only to fund statements, cash basis (C) and budgetary basis (D) lack accrual recognition, thus they are wrong.
• !Daily operational costs and salary payments are instead tracked in the general fund, not the capital projects fund.

Answer each from memory — you'll see instantly whether you're right and why.

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