Final answer:
In modified accrual accounting, used by governments, revenue is recognized when measurable and available, and expenditures are recorded when an obligation that will be paid from current resources is incurred.
Step-by-step explanation:
The modified accrual accounting method is used primarily by government entities and focuses on the timing of revenue recognition and expenditure recording. Under this method, revenues are recognized when they are both measurable and available to finance the expenditures of the current period, whereas expenditures are recorded when an obligation is incurred that will be paid from current resources.
Revenue Recognition
Revenue is recognized in the accounting period in which it becomes available and measurable, even if the cash has not been received. This means that if the government has a claim to resources that can be converted to cash within the current period, the revenue for that amount is recognized.
Expenditure Recording
Expenditures are recorded on a modified accrual basis when the related liability is incurred, as long as the liability will be liquidated with expendable available financial resources. This approach to recording expenditures emphasizes the financial resources that are available in the short term, typically within 60 to 90 days after year-end.