Question

Expenditure recorded under modified accrual accounting is essentially the same as expense reCorded under accrual accounting .T/F?

Answer 1

FALSE

Modified accrual accounting combines aspects of accrual basis accounting with cash basis accounting. The purpose of this type of accounting is to measure the flows of current financial resources in governmental fund financial statements. The standards for modified accrual accounting are set by the Government Accounting Standards Board (GASB). As the name implies, this approach to accounting is primarily used by government entities. The accounting requirements of government entities are considered to be sufficiently different from those of for-profit entities to require this different approach.

Expenditures are recognized when liabilities are incurred. This is the same approach used under the accrual basis of accounting, though inventory and prepaid items can be recognized as expenditures when purchased, rather than first being capitalized as an asset. In addition, depreciation expense is not recognized. Instead, assets are expensed when purchased.