Which accounting method is typically used by New Jersey municipalities?

New Jersey municipalities typically use the modified accrual basis of accounting, which is appropriate for governmental entities. The modified accrual basis combines elements of both accrual and cash basis accounting. Under this method, revenues are recognized when they become available and measurable, while expenditures are recognized when the related liability is incurred. This approach allows municipalities to effectively manage their budgets and ensure compliance with legal requirements related to funding and expenditures.

By using the modified accrual basis, municipalities can better align their financial reporting with the regulatory framework set forth by the state. This method is particularly important for tracking the flow of financial resources, such as taxes and grants, which are crucial for budgeting and financial planning in public service. The modified accrual basis also helps municipalities to remain transparent and accountable to their constituents by providing a more accurate picture of their financial status and operational capabilities than other methods might offer.