What distinguishes revenue recognition under accrual basis from modified accrual basis?

The correct choice highlights a fundamental aspect of the accrual and modified accrual bases of accounting. Under the accrual basis of accounting, revenue is recognized when it is earned, regardless of when cash is received. This method focuses on the completion of the earnings process, ensuring that revenues are matched with the expenses incurred to generate them, providing a complete picture of financial performance.

In contrast, the modified accrual basis, often used in government accounting, employs the availability criterion, meaning revenue is only recognized when it is collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Essentially, this criterion ensures that resources are actually available to finance current expenditures, prioritizing cash flow relevance during the fiscal period.

This distinction is crucial because it affects how entities report their financial situations and operational performance. The availability criterion under the modified accrual basis prevents the recognition of revenue that is not likely to be collected in a timely manner, which differs markedly from the more expansive revenue recognition principle employed under the accrual basis.