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3. What criteria must be met before revenues can be recognized on a modified accrual basis? What is the rationale for these criteria?

Under the modified accrual basis, revenues in governmental funds are recognized only when they are measurable and available to pay current-period obligations. "Measurable" means the amount can be reasonably estimated, while "available" generally refers to collection within the current period or soon after (commonly within 60 days) (GASB, 1997). For example, property taxes expected beyond the availability period are recorded as deferred inflows until they become collectible, while licenses or fines are often recognized when cash is received since they cannot be reliably estimated in advance.

In addition, eligibility requirements must be met for nonexchange revenues such as grants. Under GASB Statement No. 33, governments cannot recognize these inflows until they meet time, purpose, and contingency conditions, and only if the resources are also considered available (GASB, 1998). This means reimbursement grants, for instance, are not revenue until allowable costs are incurred and the government expects timely collection.

The rationale for these criteria is that governmental fund reporting emphasizes current financial resources rather than long-term capacity. By limiting recognition to revenues that are measurable and available, financial statements better reflect a government's ability to pay for current services and ensure accountability for budget compliance (GASB, 2007). In contrast, government-wide statements follow full accrual and recognize revenues when earned, supporting long-term accountability.