The accounting and financial reporting treatment applied to an account is determined by its measurement focus. Measurement focus is concerned with what financial transactions and events will be recognized in the accounting records and reported in the financial statements. While there are a number of measurement focuses, the following two are fundamental to current governmental accounting principles:
- Flow of economic resources focus considers all of the assets available to the governmental unit for the purpose of providing goods and services. Under this focus, all assets and liabilities, both current and long-term, are recorded within the fund and depreciation is recorded as a charge to operations.
- Flow of current financial resources focus measures the extent to which financial resources obtained during a period are sufficient to cover claims incurred during that period. The emphasis of this focus is on cash and assets that will become cash during or shortly after the current period. Long-term capital assets and long-term obligations are not recorded within a fund under this measurement focus.
Basis of accounting refers to when transactions and events will be recognized in the accounting records and presented in the financial statements. Government accounting transactions and events are recognized on either the accrual basis or the modified accrual basis.
10.20.20.b.1 Modified Accrual Basis
The modified accrual basis of accounting is used by all governmental fund type accounts.
Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., when they become both measurable and available). “Measurable” means the amount of the transaction can be reasonably estimated. “Available” means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period.
Expenditures are recognized when the related liability is incurred.
Exceptions to the general modified accrual expenditure recognition criteria include un-matured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with expendable available financial resources.
Prepayments and capital expenditures are not recorded as deferred costs to be allocated over future periods, but rather as current expenditures.
10.20.20.b.2 Accrual Basis
All proprietary and trust fund type accounts are accounted for using the accrual basis of accounting.
Under the accrual basis of accounting, revenues are recognized when they are earned
and expenses are recognized when incurred.
This approach recognizes the deferral and capitalization of expenditures and the deferral of revenues.
Assets and liabilities reported represent all of the assets available and all of the liabilities outstanding.
All fiduciary fund type accounts use the economic resources measurement focus and are accounted for using the accrual basis of accounting.
10.20.20.c.1 Governmental Fund Types
Governmental funds focus primarily on the sources, uses and balance of current financial resources and often have a budgetary orientation. They employ the flow of current financial resources measurement focus and the modified accrual basis of accounting.
- Revenues are recognized in the accounting period in which they become measurable and available
- Expenditures are generally recognized when incurred, if measurable. Exceptions include unmatured interest on general long-term obligations and compensated absences, which are recognized when due.
- Assets and liabilities are limited to those representing current available resources or requiring expenditure of resources.
10.20.20.c.3 Fiduciary Fund Types
All fiduciary fund types focus on net position and changes in net position. Fiduciary funds use the flow of economic resources measurement focus and the accrual basis of accounting, except for the recognition of certain liabilities of defined benefit pension plans.
10.20.20.c.4 Fund Type Matrix
The following matrix reflects the relationship between the fund categories, basis of accounting and measurement focus:
|Fund Category||Fund Type||Basis of Accounting||Measurement Focus|
|Governmental||General, Special Revenue, Debt Service, Capital Projects, Permanent Funds||Modified Accrual||
Flow of current financial resources
|Proprietary||Enterprise, Internal Service||Accrual||Flow of economic resources|
|Fiduciary||Pension Trust, Investment Trust, Private-Purpose Trust, Custodial Funds||Accrual||Flow of economic resources|
Last Modified: 3/16/23, 4:36 PM