BASIS OF ACCOUNTING - 7440
The basis of accounting describes how financial activities are recognized and reported, specifically, when revenues, expenditures (or expenses), assets, and liabilities are recognized and reported in the financial reports.
Accrual Basis of Accounting
The accrual basis of accounting recognizes transactions in the fiscal year they occur, regardless of when cash is received or disbursed. Revenue is recognized in the fiscal year in which it is earned, and expenses are recognized when they are incurred. This is also referred to as the full accrual basis of accounting.
Modified Accrual Basis of Accounting
The modified accrual basis of accounting recognizes revenues if the underlying transaction occurred as of the last day of the fiscal year and the amount is measurable and available to finance expenditures of the current period (i.e., the actual collection will occur either during the current period or soon enough after the end of the current period to pay the current period’s obligations). Expenditures are recognized when the obligations are created, except for amounts payable from future fiscal year appropriations.
Cash Basis of Accounting
The cash basis of accounting records transactions at the time cash is received or disbursed.