Basis of Accounting and Basis of Budgeting
Basis of Accounting
All governmental funds are accounted for using the modified accrual basis of accounting. This means current assets and current liabilities are generally the primary balances included on the balance sheets. Deferred inflows and outflows are used to account for remaining noncurrent balances. Revenues are recognized in the accounting period in which they become measurable and available. Expenditures are recognized in the accounting period in which the liability is incurred. However, liabilities for compensated absences, debt service expenditures, claims and judgments, other post-employment benefits, net pension liability, pollution remediation, rebate arbitrage, and other long-term liabilities are recorded only when the liability is matured, and payment is due.
All proprietary funds are accounted for using the accrual basis of accounting. Revenues are recognized in the period in which they are earned and become measurable, and expenses are recognized in the period in which they are incurred and measurable. Expenses are recognized in the accounting period in which the liability is incurred, including compensated absences, interest on debt service, claims and judgments, other post-employment benefits, net pension liability, pollution remediation, rebate arbitrage, and other long-term liabilities. All assets and liabilities (whether current or noncurrent) associated with the activity are included on balance sheets.
Basis of Budgeting
Town of Northlake governmental funds are budgeted using the modified accrual basis, with revenue recognized when they become measurable. Revenue is "measurable" when the transaction amount can be reasonably determined. Expenditures are generally recognized under the modified accrual basis of accounting when the related fund liability is incurred and is expected to be liquidated within 60 days.
Proprietary funds, including enterprise and internal service funds, are budgeted on a full accrual basis, except for compensated absences, debt service payments, depreciation, capital outlay, and the change in fair value of investments not recognized as income/(expenditure). For these items, the Town budgets for the payments expected to be paid during the fiscal year and the revenues once billed. Encumbrances are recognized as expenditures using the budgetary basis of accounting by enterprise and internal service funds in the year of commitment since they represent a commitment of funding for goods or services.
