Governmental Accounting
Handout 3
Accrual: basis of accounting under which revenues are recorded when earned and expenditures
(or expenses) are recorded as soon as they result in liabilities for benefits received,
notwithstanding that the receipt of cash or the payment of cash may take place, in whole or in
part, in another accounting period.
Capital assets: Term used by GASB to include land, improvements to land, easements,
buildings, building improvements, vehicles, machinery, equipment, works of art and historical
treasures, infrastructure, and all other tangible or intangible assets that are used in operations
that have initial useful lives extending beyond a single reporting period.
Comprehensive Annual Financial Report (CAFR): A governmental unit’s official annual report
prepared and published as a matter of public record. In addition to the basic financial
statements (q.v.) and required supplementary information, the CAFR should contain
introductory material, schedules to demonstrate compliance, and statistical tables specified in
the GASB Codification.
Current: term that, applied to budgeting and accounting, designates the operations of the
present fiscal period as opposed to past or future periods. One of the Character classifications
of expenditures.
Financial Accounting Standards Board (FASB): Independent seven-member body designated to
set accounting and financial reporting standards for commercial entities and nongovernmental
not-for-profit entities.
fund accounting: Accounting system organized on the basis of funds, each of which is
considered a separate accounting entity. The operations of each fund are accounted for with a
separate set of self-balancing accounts that comprise its assets, liabilities, fund equity,
revenues, and expenditures, or expenses, as appropriate.
Generally Accepted Accounting Principles (GAAP): Body of accounting and financial reporting
standards as defined by Rule 203 of the American Institute of Certified Public Accountants
(AICPA). “Level A” GAAP is set by the FASB, the GASB, and the FASAB.
Governmental Accounting Standards Board (GASB): Independent agency established under the
Financial Accounting Foundation in 1984 to set accounting and financial reporting standards for
state and local governments and for governmentally related not-for-profit organizations.
Liquidity: A measure of the extent to which a person or organization has cash to meet
immediate and short-term obligations, or assets that can be quickly converted to do this.
Modified accrual: basis of accounting required for use by governmental funds (q.v.) in which
revenues are recognized in the period in which they become available and measurable, and
expenditures are recognized at the time a liability is incurred except for principal and interest
on long-term debt, which are recorded when due.