A city government received $1,000,000 in property tax revenues during its fiscal year. Of this amount, $900,000 was collected within 60 days after year-end, and the remaining $100,000 was collected 90 days after year-end. For its General Fund, which uses modified accrual accounting, how much property tax revenue should the city recognize for the fiscal year?
- A$100,000
- B$900,000
- C$1,000,000
- D$0
Show answer & explanationAnswer & explanation
Correct answer: B. $900,000
Under the modified accrual basis of accounting, revenues are recognized when they are both measurable and available. 'Available' is generally defined as collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period, typically within 60 days after year-end. Therefore, only the $900,000 collected within 60 days would be recognized as revenue.
Why the other options are wrong
- A. This represents only the amount collected after the 60-day window, which is not considered 'available' for current period recognition.
- C. This would be the amount recognized under full accrual, but the General Fund uses modified accrual.
- D. Some revenue must be recognized if it meets the 'measurable and available' criteria.
Modified Accrual Revenue Recognition
Under modified accrual accounting, revenues are recognized when they are both measurable and available. 'Available' generally means collectible within the current period or soon enough thereafter to pay current period liabilities (e.g., within 60 days after year-end).
- Revenues must be measurable and available.
- Availability typically means collectible within 60 days of fiscal year-end for property taxes.
- Unavailable revenues are deferred.
Memory trick: Modified Revenues: Measurable AND Available (60-day Rule).