How does modified accrual accounting differ from full accrual accounting?

Modified accrual accounting and full accrual accounting are two distinct methods of accounting, particularly in governmental accounting contexts. The key difference highlighted in the correct answer is that modified accrual accounting recognizes revenues when they are measurable and available to finance expenditures of the current period. This means that revenue is acknowledged when it can be reliably quantified and when it is expected to be received within a defined period, typically within the current fiscal year. This method is designed to address the unique needs of governmental organizations where cash flow timing and resource availability are crucial for making budgetary decisions.

In contrast, full accrual accounting recognizes revenues when they are earned, regardless of when the cash is received. This method provides a comprehensive view of the organization’s overall financial performance by recording all transactions and events that affect the financial position of the entity, including those that have not yet resulted in cash flow.

The other options do not accurately reflect the principles of modified accrual accounting or differentiate it from full accrual accounting effectively. For example, recognizing expenses only when paid is a feature of cash basis accounting rather than modified accrual. The notion that expenses and revenues are recognized simultaneously does not accurately describe either method, as each has its specific timing for recognition. Lastly, recognizing all expenses when estimated