Under modified accrual accounting, when are revenues recognized?

Under modified accrual accounting, when are revenues recognized?

• A. When cash is received.
• B. When available and measurable.
• C. When earned.
• D. When the obligation is incurred.

Answer: (B)

Under modified accrual accounting, revenue is recognized when it is both available and measurable. “Available” means the money can reasonably be expected to be received in time to pay for the current period’s expenditures (often within a short window after year-end). “Measurable” means the amount can be determined with reasonable accuracy. This approach ensures revenues are recorded only when funds are actually accessible to support current spending, while still requiring that the amount is knowable. Recognizing revenue when cash is received is cash-basis timing and not what modified accrual uses. Recognizing revenue when earned aligns with full accrual and would record revenues before they’re available. Recognizing revenue when the obligation is incurred relates to expenditures or liabilities, not to when revenues become available and measurable.

Under modified accrual accounting, revenue is recognized when it is both available and measurable. “Available” means the money can reasonably be expected to be received in time to pay for the current period’s expenditures (often within a short window after year-end). “Measurable” means the amount can be determined with reasonable accuracy. This approach ensures revenues are recorded only when funds are actually accessible to support current spending, while still requiring that the amount is knowable.

Recognizing revenue when cash is received is cash-basis timing and not what modified accrual uses. Recognizing revenue when earned aligns with full accrual and would record revenues before they’re available. Recognizing revenue when the obligation is incurred relates to expenditures or liabilities, not to when revenues become available and measurable.