Western Governors University (WGU) ACCT5201 D250 Governmental and Nonprofit Accounting Practice Exam

Under modified accrual accounting, which is commonly used in governmental accounting, expenses are recorded when the services are received, regardless of when the cash payment is made. This method combines aspects of both cash basis and accrual accounting.

In this approach, the focus is on the measurable period in which the resources are consumed or the liabilities are incurred rather than the timing of cash transactions. This allows for a more accurate representation of the financial position and performance of governmental entities by reflecting the obligations that have been incurred and the resources that have been utilized within the accounting period.

Tracking expenses at the time services are received provides a clearer picture of the government's financial activities. This is essential for accountability and transparency in public sector financial reporting. As a result, option B captures the fundamental principle of expense recognition under modified accrual accounting.