Which accounting model is commonly utilized by governmental entities?

Governmental entities commonly utilize modified accrual accounting because it aligns with the unique operational and financial reporting requirements of government activities. Modified accrual accounting combines aspects of both cash basis and full accrual accounting. It recognizes revenues when they are both measurable and available to finance expenditures of the current period. This approach is particularly suited for governmental operations because it emphasizes accountability and the flow of spendable resources, which is a priority for government agencies that must ensure they stay within budgetary constraints.

In addition, modified accrual accounting allows for the recognition of certain expenditures when liabilities are incurred, as long as the related revenues are available. This is important in understanding the financial position and operational resources available to a governmental entity at any given time, which assists stakeholders in making informed decisions about resource allocation and budgeting.

By utilizing this accounting model, government entities are better able to present their financial activities in a way that reflects their fiscal responsibilities while ensuring compliance with governmental financial reporting standards.