Basis of Accounting - Current Standards, Fines, Grants etc.

Basis of Accounting

Basis of accounting refers to when transactions and events are recognized. Modified accrual accounting is a basis of accounting that recognizes expenditures when the related fund liability is incurred or asset used and recognizes revenues when they are measurable and available. Measurable has the general meaning of that word. Available means ‘collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period.’ Because many revenue sources in governmental accounting are not ‘earned’ in the traditional sense of the word, timing of revenue recognition is more difficult to determine.

Current standards require that property tax revenues be recognized in the budgetary period for which the taxes were levied, provided they are measurable and available. Available means receivable within the current period or expected to be collected soon enough thereafter to be used to pay liabilities of the current period, so long as they are received within 60 days of year-end.

Current standards require that sales and income tax revenues be recognized in the accounting period in which the underlying exchange transaction occurs provided they are ‘available.

Fines are generally recognized on the cash basis because standards require that they be recognized when an “enforceable legal claim arises” and that date is difficult to determine in practice.

Unrestricted grants and grants with a purpose restriction are generally recognized as revenue as soon as they are announced, if their collectability is reasonably assured. Grants with eligibility requirements are generally recognized as revenue when all eligibility requirements have been met. (For reimbursement grants that generally means when the related expenditures are incurred.)

Current standards require that investment income, including changes in fair value, be reported in the operating statement of the fund. Unrealized holding gains and losses are netted against realized gains and losses and included in the operating statement. Dividends and interest are generally reported on the cash basis.

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