Accounting
Financial Management
Modified Accrual Accounting: How Governmental Funds Recognize Revenue and Expenditures
Last updated: October 10, 2026 · Independent guide · We do not sell rankings or coverage.
Modified accrual accounting is the basis of accounting that governmental funds (the general fund, special revenue funds, debt service funds and capital projects funds) use under US GAAP for state and local governments. Revenue is recognized when it is both measurable and available to pay the current period’s bills, and expenditures are recognized when the liability is incurred, provided it will normally be paid from current financial resources. For property taxes, “available” means collected within the fiscal year or no more than 60 days after it ends. Because the government-wide statements required by GASB Statement 34 use full accrual, your finance office has to keep, or rebuild, both views every year.
The rule and the core journal entries
Two tests drive every recognition decision in a governmental fund. Revenue must be measurable (the amount can be reasonably estimated) and available (collectible within the current period or soon enough afterward to pay liabilities of the current period), as the National Center for Education Statistics summarizes from GASB Codification Section 1600.106 (NCES, April 2015). Expenditures follow GASB Interpretation 6: long-term items such as bond principal and compensated absences are recorded in the fund only when they mature, meaning payment is due (NCES, April 2015).
Amounts that fail the availability test sit in a deferred inflow of resources, usually labeled “unavailable revenue.”
| Account | Debit | Credit | Note |
|---|---|---|---|
| Property taxes receivable | Gross levy | Levy for the current fiscal year | |
| Allowance for uncollectible taxes | Estimate | Based on collection history | |
| Property tax revenue | Net levy | Trimmed at year-end to the available amount | |
| Property tax revenue | Uncollected beyond 60 days | Year-end availability adjustment | |
| Deferred inflows: unavailable revenue | Same | Reverses when collected | |
| Grants receivable | Allowable costs incurred | Reimbursement grant: eligibility met when costs are incurred | |
| Intergovernmental revenue | Same | Only the portion that is also available | |
| Expenditures: debt service principal | Principal due | Debt service fund, on the due date | |
| Expenditures: debt service interest | Interest due | No accrual of interest between payment dates | |
| Cash | Total payment | Bonds payable is never in the fund | |
| Expenditures: capital outlay | Purchase price | No asset, no depreciation in the fund | |
| Cash or vouchers payable | Same | Capitalized only in the government-wide statements |
Worked example: one school district’s fiscal year
The figures below are an illustration for a hypothetical district with a June 30, 2026 year-end and a written policy of a 60-day availability period for all revenues. The Washington State Auditor’s BARS manual says governments may set their own period for revenues other than property taxes and recommends using a single one (Washington SAO, no date shown).
Step 1: Property taxes
The district levies $10,000,000 for fiscal 2026 and expects $200,000 to be uncollectible. It collects $9,100,000 by June 30 and $300,000 more by August 29, inside the 60-day window. The remaining $400,000 of net receivable is not available. The district also collected the $350,000 that was unavailable at June 30, 2025.
- Levy: debit Property taxes receivable $10,000,000; credit Allowance $200,000; credit Property tax revenue $9,800,000.
- Collections: debit Cash $9,100,000; credit Property taxes receivable $9,100,000.
- Year-end: debit Property tax revenue $400,000; credit Deferred inflows: unavailable revenue $400,000.
- Prior-year deferral collected: debit Deferred inflows $350,000; credit Property tax revenue $350,000.
Fund revenue is $9,750,000. Government-wide revenue is $9,800,000, the net levy for the year.
Step 2: A reimbursement grant
The district spends $1,200,000 of allowable costs under a federal reimbursement grant and receives $900,000 by June 30. Of the $300,000 claimed in July, $180,000 arrives on August 15 and $120,000 arrives in October.
- As costs are incurred: debit Grants receivable $1,200,000; credit Intergovernmental revenue $1,200,000.
- Receipts: debit Cash $900,000; credit Grants receivable $900,000.
- Year-end: debit Intergovernmental revenue $120,000; credit Deferred inflows: unavailable revenue $120,000.
Fund revenue is $1,080,000. Government-wide revenue is $1,200,000, because full accrual drops the availability test.
Step 3: Debt service
The district has $6,000,000 of general obligation bonds at 4%, with one annual payment each December 1. On December 1, 2025 it pays $500,000 of principal and $240,000 of interest from the debt service fund.
- Debit Expenditures: principal $500,000; debit Expenditures: interest $240,000; credit Cash $740,000.
At June 30, 2026, seven months of interest on the remaining $5,500,000 ($128,333) has built up, but the fund records nothing because it is not due. The government-wide statements accrue it.
Step 4: Capital outlay
The district buys two buses for $300,000 on January 1, 2026, with a 10-year life and no salvage value.
- Debit Expenditures: capital outlay $300,000; credit Cash $300,000.
The government-wide statements instead show a $300,000 asset and $15,000 of depreciation for six months.
Converting to full accrual for the government-wide statements
GASB Statement 34, issued in June 1999, kept modified accrual for governmental fund statements and added government-wide statements on the full accrual basis, with a reconciliation between the two (California Department of Education, November 15, 1999). Most governments do not run a second ledger. They take the governmental fund trial balances and post conversion entries to reach the government-wide totals, as the Ohio Auditor of State’s GAAP conversion guidance describes (Ohio Auditor of State, last modified April 29, 2021).
For the illustrative district, the adjustments to the net change in fund balance are:
| Item | Fund statements | Government-wide | Adjustment |
|---|---|---|---|
| Property tax revenue | $9,750,000 | $9,800,000 | +$50,000 |
| Grant revenue | $1,080,000 | $1,200,000 | +$120,000 |
| Buses | $300,000 expenditure | $15,000 depreciation | +$285,000 |
| Bond principal | $500,000 expenditure | Reduces bonds payable | +$500,000 |
| Bond interest | $240,000 | $228,333 | +$11,667 |
| Total | +$966,667 |
Government-wide interest expense is $240,000 paid, less the $140,000 accrued at June 30, 2025, plus the $128,333 accrued at June 30, 2026. Depreciation on older assets is left out for simplicity. The South Dakota Department of Legislative Audit’s reconciling guidance lists the same categories: receivables offset by deferred revenue, capital assets and depreciation, long-term debt and principal payments (South Dakota Department of Legislative Audit, no date shown).
The standards behind it
The 60-day limit for property taxes comes from GASB Codification Section P70.104, which the Indiana State Board of Accounts quotes as “Such time thereafter shall not exceed 60 days” (Indiana State Board of Accounts, September 8, 2020). The memo adds that taxes are recognized in the fiscal period for which they are levied.
Grant revenue follows GASB Statement 33. For reimbursement grants, the New York State Comptroller summarizes the rule as: the expenditure must have been made and the revenue must be available (Office of the New York State Comptroller, no date shown). For debt service, GASB Interpretation 6 allows the fund to accrue principal and interest due shortly after year-end when resources were already transferred to the debt service fund. NCES limits this to payments due no more than 30 days after year-end, and only if the money is legally required to be set aside in a debt service fund and the option is used on a consistent basis (NCES, April 2015).
GASB Statement 103, Financial Reporting Model Improvements, applies to fiscal years beginning after June 15, 2025 (Crowe, May 31, 2024). The board dropped its proposed new measurement approach for governmental funds before finalizing it, so Statement 103 does not change the basis of accounting in governmental fund statements (Carr, Riggs & Ingram, April 23, 2024). Modified accrual remains in place for fiscal 2026 statements.
Common mistakes
- Applying 60 days to everything without a policy. The 60-day cap is fixed for property taxes only. Set a written period for other revenues and use it consistently.
- Booking reimbursement grant revenue when the claim is filed. The eligibility requirement is met when allowable costs are incurred, not when you bill the grantor.
- Accruing interest in the debt service fund. Interest between payment dates belongs only in the government-wide statements, unless the narrow Interpretation 6 exception applies.
- Forgetting to reverse prior-year deferrals. Unavailable revenue from last year becomes fund revenue when collected, and the conversion entry must back it out of government-wide revenue.
How to report it
On the governmental funds balance sheet, show receivables at their net amounts and the unavailable portion as deferred inflows of resources. The statement of revenues, expenditures and changes in fund balances reports capital outlay and debt service as expenditures, and bond proceeds as other financing sources. Present both reconciliations to the government-wide statements on the face of the statements or in a schedule. Disclose your availability period in the summary of significant accounting policies, as the Indiana memo above notes.
How Munis, Caselle and Sage Intacct keep both bases
Tyler Munis. Munis is Tyler Technologies’ enterprise resource planning (ERP) system, used by public sector customers such as school districts (Tyler Technologies, May 5, 2020). For year-end reporting, Tyler sells ACFR Statement Builder, which it says is “embedded with the Government Accounting Standards Board (GASB) rules” for producing statements and schedules (Tyler Technologies, no date shown). Tyler does not publish how conversion entries are stored, so ask to see that during a demo.
Caselle. Caselle sells financial software to local governments, and its general ledger page advertises customizable financial statements, fund-level budget summaries and grant reporting (Caselle, no date shown). Its public pages do not describe how it handles government-wide conversion entries, so ask whether they can be posted in the system or must be kept on a separate worksheet. Pricing is not published.
Sage Intacct. Sage markets “GASB-compliant fund accounting” for government (Sage, no date shown). Its user-defined books let you post entries that a report can include or exclude alongside the main book (Sage Intacct, last modified October 8, 2026), which suits conversion entries. Be careful with Sage’s own “modified accrual” help page: it describes backing out unpaid bills for an internal management report, not GASB modified accrual (Sage Intacct, last modified October 8, 2026). Our Sage Intacct review covers editions and pricing, and our guides to accrual accounting automation and close automation explain recurring and reversing entries that make the yearly conversion repeatable.
How we researched this
We read the top-ranking pages for “modified accrual accounting” from Corporate Finance Institute, AccountingTools and DebtBook (which sells treasury and debt software). None gave journal entries or a worked conversion. We then used GASB guidance as quoted by NCES and state auditors in Indiana, Ohio, South Dakota, Washington and New York, plus vendor documentation from Tyler, Caselle and Sage, checked on October 10, 2026. All dollar figures in the example are illustrative.
Related guides
- Encumbrance Accounting: Entries, Year-End and GASB 54
- GASB 87 Lease Accounting: Entries, Example and Software
- SF-425 Federal Financial Report: Lines, Due Dates, Ledger
Frequently asked questions
Is modified accrual GAAP?
Yes, for state and local governments. GASB standards require governmental fund statements to use modified accrual and the current financial resources focus. It is not GAAP for businesses or nonprofits that follow FASB standards.
Which funds use modified accrual?
Governmental funds use it: the general fund, special revenue funds, debt service funds, capital projects funds and permanent funds. Proprietary funds such as water or sewer enterprise funds and fiduciary funds use full accrual.
Does the 60-day rule apply to grants and sales taxes?
The 60-day maximum is set only for property taxes. For grants, sales taxes and other revenues, your government chooses an availability period, applies it consistently and discloses it.
Why does depreciation not appear in governmental funds?
Modified accrual measures the flow of current financial resources, and depreciation uses none. The full cost of a capital purchase is an expenditure when you incur it, and depreciation appears only in the government-wide statement of activities.
Sources
- NCES, Financial Accounting for Local and State School Systems, Chapter 5: Revenues, April 2015
- NCES, Financial Accounting for Local and State School Systems, Chapter 5: Expenditures, April 2015
- Indiana State Board of Accounts, Property Taxes Reporting in GASB 34 Financial Statements, September 8, 2020
- Office of the New York State Comptroller, GASB Statement No. 33, no date shown
- Washington State Auditor’s Office, Revenue Accruals in Governmental Funds, no date shown
- California Department of Education, GASB 34 letter, November 15, 1999
- Ohio Auditor of State, GAAP Conversion Process Overview, last modified April 29, 2021
- South Dakota Department of Legislative Audit, Municipal Accounting Manual Section 7: Reconciling, no date shown
- Crowe, GASB releases financial reporting model updates, May 31, 2024
- Carr, Riggs & Ingram, At Long Last, GASB Approves Financial Reporting Model Improvements, April 23, 2024
- Tyler Technologies press release on Munis ERP, May 5, 2020 (vendor)
- Tyler Technologies, ACFR Statement Builder, no date shown (vendor)
- Caselle, General Ledger, no date shown (vendor)
- Sage, Sage Intacct for government and public benefit organizations, no date shown (vendor)
- Sage Intacct Help, Track purchase commitments using user-defined books, last modified October 8, 2026 (vendor)
- Sage Intacct Help, Report on a modified accrual basis, last modified October 8, 2026 (vendor)
Sherman Hsieh
Independent analysis of enterprise software — ERP, CRM and more
