Question

A particular city’s accounting system is organized and operated on a fund basis. Among the types of funds used are a general fund, a special revenue fund, and an enterprise fund.

Required for Initial Discussion Post:

Explain the basic differences in revenue recognition between the accrual basis of accounting and the modified accrual basis of accounting in relation to governmental accounting. What basis of accounting should be used for each of the following funds: (1) general fund, (2) special revenue fund, and (3) enterprise fund?

Answer 1

Solution:

Part 1)

* In the Accrual basis of accounting, the income/revenue is recognized in the accounting period in which it is earned and measured.

* In the Modified accrual basis of accounting, the income/revenue is recognized in the accounting period in which it is measured and should be able to finance the expenses of the accounting period. Here the income should be collected within the same period to be used to pay off the current liabilities.

Part 2)

General Fund: Here, the modified accrual basis of accounting is to be used as the General fund is considered as a governmental fund, a separation of financial resources available in accounting.

Special Revenue Fund: Here, the modified accrual basis of accounting is to be used as the Special revenue fund is considered as a governmental fund, a separation of financial resources available in accounting.

Enterprise Fund: Here, the accrual basis of accounting is to be used as the Enterprise fund is considered as a proprietary fund as their activities are considered to be used for profit generation.