Summary of Interpretation No. 6

Interpretation No. 6
Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements—an interpretation of NCGA Statements 1, 4, and 5; NCGA Interpretation 8; and GASB Statements No. 10, 16, and 18
(Issued 3/00)


The purpose of modified accrual accounting is to measure flows of current financial resources in governmental fund financial statements. This Interpretation clarifies the application of standards for modified accrual recognition of certain liabilities and expenditures in areas where differences have arisen, or potentially could arise, in interpretation and practice. Key points of clarification include the following:

  • In the absence of an applicable accrual modification, governmental fund liabilities and expenditures should be accrued. Liabilities that governments normally pay in a timely manner and in full from expendable available financial resources (for example, salaries and utilities) should be recognized when incurred, without regard to the extent to which resources are currently available to liquidate the liability.
  • A government’s unmatured long-term indebtedness (other than "specific fund debt" of proprietary and trust funds) should be reported as general long-term liabilities, rather than governmental fund liabilities. This requirement applies not only to formal debt issues, such as bonds, but also to other forms of general long-term indebtedness, including compensated absences, claims and judgments, special termination benefits, landfill closure and postclosure care costs, and "other obligations" that are not due for payment in the current period.
  • A government may accrue an additional governmental fund liability and expenditure for debt service on general long-term debt, beyond the amounts matured, if it has provided financial resources to a debt service fund for payment of liabilities that will mature early in the following year. This Interpretation clarifies that the application of the term provided is limited and that the term early in the following year refers to a short time period-usually one to several days and not more than one month.
  • Liabilities for compensated absences, claims and judgments, special termination benefits, and landfill closure and postclosure care costs are "normally expected to be liquidated with expendable available financial resources," and should be recognized as governmental fund liabilities, to the extent that they mature each period. The accumulation of financial resources in a governmental fund for eventual payment of unmatured liabilities (for example, compensated absences) does not constitute an outflow of current financial resources or result in the recognition of an additional governmental fund liability or expenditure.
The effective date of this Interpretation coincides with the effective date of Statement 34 for the reporting government. Earlier application is encouraged, provided that this Interpretation and Statement 34 are implemented simultaneously.

Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including general purpose governments, public benefit corporations and authorities, public employee retirement systems, utilities, hospitals and other healthcare providers, and colleges and universities. Paragraph 5 discusses the applicability of this Interpretation.