Question

Do you believe it is confusing to users for there to be two sets of financial statements for state and local governments--one set under modified accrual accounting and the other set under accrual accounting? Why or why not?

Answer 1

• ?The modified accrual accounting method of accounting is derived from two other method of accounting;

1. Cash Method
2. Accrual Method

• The Cash Method recognizes transactions upon the exchange of cash. Expenses are not recognized until they are paid and revenue is not recognized until payment has been received.
• Modified and accrual accounting processes are the two most common choices that businesses have when choosing how to represent their transaction and expenses.
• But within the category of Accrual Accounting, businesses also have to choose between two primary options, known as full accrual and modified accrual.
• The diffrences between the two are primarily focused on how the busuness records its expenses and how it wants to approach budget planning.
• The full accrual method is useful when a business wants to record all of its expenses and profit when operations actually took place and there is little debt involved.
• The accrual method is often very timely and helps business keep tighter control over its cash flow.
• The Modified method provides the timeliness of the accrual practice but allows the business more efficient, letting it adjust its budgets more easily inthe face of changes and represent costs to executives and directors when they actually occur.