Which of the following statements is true regarding modified accrual accounting?

Modified accrual accounting is a method that combines elements of both cash basis accounting and accrual accounting. It is primarily used by government entities and emphasizes the recognition of revenues and expenses in a manner that aligns with the timing of their availability for use.

The statement that is true regarding modified accrual accounting is that it recognizes revenues when they are measurable and available. This means that revenue is recorded when it is earned and can be reliably measured, as long as it is also expected to be collected within a certain timeframe (typically within the fiscal year). This approach ensures that financial statements reflect not only the revenue to be earned but also the availability of that revenue to fund operations.

In contrast, other methods mentioned—like recognizing revenue only upon cash receipt or recognizing expenses solely when cash is paid—align more closely with cash basis accounting. Cash basis accounting does not consider the timing of when obligations are incurred or when services are rendered, which can lead to a less accurate portrayal of an entity's financial health.

Modified accrual accounting provides a middle ground that helps ensure revenues are recorded when they can effectively contribute to current financial reporting, without necessitating the receipt of cash first. Additionally, recognizing expenses only when they are budgeted does not follow the principles of modified accrual