### Understanding Modified Accrual AccountingIn the realm of government accounting, different financial statements are prepared using different accounting methods. One such method is **modified accrual accounting**. This method is a hybrid of accrual and cash basis accounting and is primarily used for certain types of government financial statements.**Question:**Which financial statements are prepared using **modified accrual** accounting?**Options:**- **A)** Proprietary fund financial statements.- **B)** Governmental fund financial statements.- **C)** Government-wide financial statements.- **D)** Both A and B.- **E)** Both B and C.**Explanation of Options:**1. **Proprietary Fund Financial Statements (Option A)** - Proprietary funds are used to account for a government's ongoing activities that are similar to those found in the private sector. These are typically accounted for using the accrual basis rather than modified accrual accounting. 2. **Governmental Fund Financial Statements (Option B)** - These statements include the general fund, special revenue funds, capital projects funds, debt service funds, and permanent funds. They are typically prepared using modified accrual accounting. 3. **Government-wide Financial Statements (Option C)** - These statements provide a broad view of a government's financial position and operations as a whole, typically using the accrual basis of accounting. 4. **Combination Options:** - **Option D)** suggests that both proprietary and governmental fund financial statements use modified accrual accounting. - **Option E)** suggests that both governmental fund financial statements and government-wide financial statements use modified accrual accounting.### Correct Answer:The correct answer is **B) Governmental fund financial statements.**### Insight:Modified accrual accounting recognizes revenues when they become available and measurable and recognizes expenditures when the related fund liability is incurred. This method is especially suitable for governmental fund financial statements because it provides a more accurate representation of governmental financial activities and resource allocations.

Modified accrual accounting is the one where a combination of both cash and accrual basis is being…

Which financial statements are prepared using modified accrual accounting? A) Proprietary fund financial statements. B) Governmental fund financial statements. C) Government-wide financial statements. D) Both A. and B. E) Both B and C.

Which financial statements are prepared using modified accrual accounting? A) Proprietary fund financial statements. B) Governmental fund financial statements. C) Government-wide financial statements. D) Both A. and B. E) Both B and C.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter7: Accounting Information Systems

Section: Chapter Questions

Problem 5Q: Which area of accounting needs a computerized accounting information system the mostâ€”payroll, tax,...

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