In full accrual accounting, revenue for the period is determined first, and then costs are MATCHED to revenues (not periods). Since revenue often varies, it is much harder to budget, too much is driven by the economy. When costs are not able to be matched, they are assigned to the period incurred. If the costs are for more than the current period, they are spread out through amortizations (of which depreciation is one class). The modified accrual process requires revenues and expenses to MATCH the period in which they are authorized if they are paid or received within 60 days. From this perspective, we eliminate amortizations, which are estimates. This is a key difference for proprietary funds. Why do we not apply this to the road department for example?

In full accrual accounting, revenue for the period is determined first, and then costs are MATCHED to revenues (not periods). Since revenue often varies, it is much harder to budget, too much is driven by the economy. When costs are not able to be matched, they are assigned to the period incurred. If the costs are for more than the current period, they are spread out through amortizations (of which depreciation is one class). The modified accrual process requires revenues and expenses to MATCH the period in which they are authorized if they are paid or received within 60 days. From this perspective, we eliminate amortizations, which are estimates. This is a key difference for proprietary funds. Why do we not apply this to the road department for example?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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