What does "MODIFIED ACCRUAL BASIS" primarily focus on in local government accounting?

The modified accrual basis of accounting is essential in local government accounting as it emphasizes recognizing revenues when they are both measurable and available to finance expenditures of the current period. This approach ensures that revenues are not recognized simply when received, but rather when there is a reasonable expectation that they will be collected and can be used to fund current obligations. This concept aids in presenting a clearer picture of a government entity’s financial position and operational results within a specific time frame, ensuring that financial statements reflect the available resources for funding current-year activities.

This method aligns with the needs of governmental financial reporting, which must balance an understanding of cash flows with the need to reflect the expected revenues that will be collected soon after the period ends. By focusing on both measurement and availability, the modified accrual basis provides more useful information for decision-makers compared to approaches that might solely assess based on cash transactions. This comprehensive view supports effective budgetary control and financial planning within local governments.