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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

General Accounting

Governmental Reporting Overview
Modified Accrual Basis of Accounting

Modified accrual is a combination of cash basis and full accrual basis. Revenues are recognized when they are both measurable and available.

Expenditures, however, are recorded on a full accrual basis because they are always measurable when they are incurred. The measurement focus of governmental funds affects which transactions are recognized in the operating fund. If transactions are not a current resource or use, they are not reported in the operating fund of the fund financial statement (for example, capital assets or long-term liabilities). Under GASB 34, these noncurrent activities are reported on the government-wide statements only.

Depreciation expense is not recorded for governmental funds under the modified accrual basis — assets are instead expensed in the operating fund when purchased because they are a current use of funds.

Expenditure Recognition – Consumption Method and Purchases Method

Under accrual accounting, expenditures are recognized as soon as a liability is incurred regardless of the timing of related cash flows. However, under the modified accrual basis, GAAP provided modifications to the general rule in the areas of inventories and prepaid items.

  • Under the purchases method — inventories and prepaid items are reported as expenditures when purchased rather than capitalized as an asset.
  • Under the consumption method — governments may initially report inventories and prepaid items they purchased as an asset and defer the recognition of the expenditure until the period the inventories and prepaid items are actually consumed or used.

The Comptroller’s office adopted the consumption method and agencies must use the consumption method in their AFR. For more information, see Inventories and Prepaid Items.

Glenn Hegar
Texas Comptroller of Public Accounts
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