Two levels of reporting
State and local governments report at two levels: fund-level statements (using different bases of accounting depending on fund type) and government-wide statements (full accrual, similar to a business).
Fund categories
| Category | Basis of accounting | Examples |
|---|---|---|
| Governmental funds | Modified accrual | General fund, special revenue, capital projects, debt service |
| Proprietary funds | Full accrual | Enterprise funds, internal service funds |
| Fiduciary funds | Full accrual | Pension trust, custodial funds |
Modified accrual basis
Under modified accrual (used only for governmental funds at the fund level), revenues are recognized when measurable and available (available generally means collectible within the current period or soon enough thereafter to pay current-period liabilities — commonly interpreted as 60 days). Expenditures (not "expenses") are generally recognized when the related liability is incurred, with some exceptions (e.g., debt service is recognized when due).
IMPORTANT: Governmental funds don't report long-term assets or long-term liabilities on the fund-level balance sheet — those only show up in the government-wide statements. Fund-level statements focus on current financial resources.
EXAM TIP: "Expenditures," not "expenses," is the governmental-fund vocabulary — it signals modified accrual and current-financial-resources focus. Seeing "expenses" and full accrual points you to proprietary funds or government-wide statements.