what is modified accrual accounting 
modified accrual accounting is an alternative bookkeeping method that combines accrual basis accounting with cash basis accounting it recognizes revenues when they become available and measurable and with a few exceptions records expenditures when liabilities are incurred modified accrual accounting is commonly used by government agencies understanding modified accrual accountingto understand how modified accrual accounting works it is first essential to break down how the traditional bookkeeping practices are influenced by function modified accrual accounting borrows elements from both cash and accrual accounting depending on whether assets are long term such as fixed assets and long term debt or short term such as accounts receivable ar and inventory recording short term eventsthe modified accrual practice follows the cash method of accounting when economic events affecting the short term have occurred an economic event is recorded in the short term when the cash balance has been affected the result of this rule is that almost all items recorded on the income statement are recorded using the cash basis and items including accounts receivable and inventory are not recorded on the balance sheet recording long term eventseconomic events expected to impact multiple reporting periods are recorded using rules similar to the accrual method this directly impacts the way fixed assets and long term debt are documented under the modified accrual method these long term items are recorded on the balance sheet and depreciated depleted or amortized over the life of the asset or liability this systematic distribution of expenses or revenues allows future financial statements to have more comparability special considerationsa modified accrual accounting system combines the simplicity of cash accounting with the more sophisticated ability of accrual accounting to match related revenues with expenses it is not commonly used by public companies however as it does not comply with international financial reporting standards ifrs or the generally accepted accounting principles gaap which outline what procedures companies must follow when preparing their officially reported financial statements 1 businesses that wish to use this method must do so for internal purposes and then convert transactions recorded under a cash basis to accrual accounting to get them signed off by auditors 2under gaap if a public company has average gross receipts for the past three years of 26 million or less they can then choose which accounting method they would like 3for governments it is a different story the government accounting standards board gasb which is recognized as the official source of gaap for state and local governments establishes modified accrual accounting standards 4modified accrual accounting is used and accepted by governmental agencies because they focus on current year obligations governmental agencies have two key objectives to report whether current year revenues are sufficient enough to finance current year expenses and to demonstrate whether resources are being used according to legally adopted budgets 5modified accrual accounting ticks those boxes it enables government agencies to focus on short term financial assets and liabilities it also permits them to divide available funds into separate entities within the organization to ensure that money is being spent where it was intended companies may also use a modified cash basis method for internal record keeping 