What basis of accounting do government type funds primarily use?

Government type funds primarily use the modified accrual basis of accounting. This method combines elements of both cash and accrual accounting, specifically tailored to meet the unique needs of governmental entities. Under the modified accrual basis, revenues are recognized when they become both measurable and available, meaning they are collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. On the other hand, expenditures are typically recognized when the related liability is incurred, which allows for a better management of the financial resources and obligations of the government.

This approach is particularly relevant for governmental funds since it provides a clearer picture of the availability of financial resources during a fiscal period, aligning with the focus on fiscal accountability and budgetary control that is central to governmental operations. The modified accrual basis allows governments to account for financial transactions in a manner that emphasizes the flow of current resources, crucial for managing public funds effectively.