Difference between Governmental Funds and Measurement Focus and Basis of Accounting

Government uses a different measurement focus and basis of accounting for its governmental fund financial statements. Governmental funds use a current financial resource measurement focus and a modified accrual basis of accounting. This measurement focus concentrates on financial resources that are current; that is, they are likely to be turned into cash or consumed within one year. These resources typically include cash, investments, accounts receivable, and accounts payable. Capital resources, such as buildings, equipment and infrastructure, and long-term liabilities are not included.

The basis of accounting for governmental funds focuses on expenditures rather than expenses. Whereas resources are used up as expenses in order to operate an organization and provide services (full accrual records a reduction in net position upon comsumption), expenditures represent a payment or a requirement to pay for purchased and received goods and services used to operate the government or provide public services. Consequently, modified accrual records a reduction in fund balance when a good or service has been delivered, and the government is obligated to pay.