California Department of General Services (2024)

The basis of accounting describes how financial activities are recognized and reported; specifically, when revenues, expenditures (or expenses), assets, and liabilities are recognized and reported in the financial statements. The bases of accounting include the following:

Accrual Basis of Accounting

This is the basis of accounting in which transactions are recognized in the fiscal year they occur, regardless of when cash is received or disbursed. Revenue is recognized in the fiscal year earned, and expenses are recognized when incurred. This is also referred to as the full accrual basis of accounting.

Proprietary and fiduciary type funds use the accrual basis of accounting to recognize and report financial activities.

Modified Accrual Basis of Accounting

This is the basis of accounting in which revenues are recognized if the underlying transaction has occurred as of the last day of the fiscal year and the amount is measurable and available to finance expenditures of the current period (i.e., the actual collection will occur either during the current period or soon enough after the end of the current period, to be used to pay current period’s obligations). Expenditures are recognized when the obligations are created, except for amounts payable from future fiscal year appropriations.

Governmental type funds use the modified accrual basis of accounting to recognize and report financial activities.

Cash Basis of Accounting

The basis of accounting in which revenues and expenditures are recognized when cash is received or disbursed.