What are the fund accounting principles applicable to governmental funds?

The principles of fund accounting that apply to governmental funds are centered around the current financial resources measurement focus. This approach emphasizes the inflows and outflows of available financial resources during the period, which is critical for evaluating the use of funds within a given reporting period. It aligns with the fiscal accountability aspect of governmental financial reporting, enabling stakeholders to assess whether government entities are meeting their budgetary and operational objectives.

Under the current financial resources measurement focus, governmental funds recognize revenues when they are both measurable and available for spending. Expenditures are recorded when the related liability is incurred, promoting transparency about resources that can be spent in the short term. This focus reflects the short-term financial position of a governmental entity, ensuring that users of financial statements can evaluate the resources that will be available for future expenditures.

In contrast, the other options do not align with the principles governing governmental funds. The full accrual basis of accounting applies to proprietary and fiduciary funds, focusing on economic resources and recognizing all revenues when earned and all expenses when incurred, irrespective of cash movements. The economic resources measurement focus is relevant for these same fund types, examining overall economic viability rather than just current resources. The modified cash basis of accounting, while sometimes utilized in specific situations, is not the