[1]: 45 [2]: 3 Under accrual accounting, income and expenditure transactions are recognized when they occur, regardless of when the associated cash payments are made.
[4]: 19 Instead, payment for capital used (i.e., the estimated depreciation or amortization) is included in that year's budget as an operating expense.
By contrast, under accrual accounting, income and expenditure transactions are recognized when they occur, regardless of when payments are made.
[7]: 105 Under accrual accounting in the public sector, expenditure on capital is not included in net operating expense in the year it is purchased.
[3]: 145 Under cash accounting a government subject to a balanced-budget rule may prefer to lease, only to avoid a large expense that leads to a current period deficit.
[5]: 393–394 With cash accounting the cost of capital assets is recognized in the budget in the year the expense is incurred.
[7]: 106 For this reason, fiscal responsibility may be undermined because the political decision to spend on capital is not matched in time with when the expense is recorded in the budget.
[7]: 106 Further, accrual accounting may encourage government borrowing because capital expenditures are not counted as a current year expense.
[6] This creates an opportunity to expand government capital programs without having to show any cost in terms of an increase in the (accrual accounting-based) deficit.
[5]: 392–394 With accrual accounting, there is room for manipulation in the choice of depreciation rates, the valuation of assets, and in the determination of what constitutes a capital expenditure.
[6]: 1 Even observers who take the trouble to read the budget documents are often confused by the way the accounts are presented and are not confident that the numbers adequately represent the government's fiscal position.
"[3]: 132 An advantage of measuring a government's fiscal balance (deficit or surplus) using its cash balance is that the cash deficit/surplus incorporates spending on capital, so it measures the demand from the government on the current resources of the economy: i.e., the net fiscal stimulus.
[5]: 388–389 Counties in the German state of Bavaria that adopted accrual accounting (compared to counties that remained using cash accounting) did not exhibit significantly different behavior in terms of investment, borrowing (public debt), government efficiency, or voter participation.
[18] A study of eleven OECD countries found scant evidence of an impact from the introduction of accrual accounting on budget preparation or fiscal policy, except that two countries said it had driven their government and parliament to create a fund to finance public sector (i.e. civil service) pensions.
[3]: 119–120 Also, New Zealand closed its civil service defined-benefit pension scheme to new employees when the first set of accrual accounts revealed the size of the plan liability.
[21]: 96 Governments have been urged to prepare their financial accounts so that it is easier to compare and reconcile cash-based and accrual-based deficit measures.
[3]: 122 In Switzerland, budgets and financial statements are prepared on an accrual basis but the federal government anchors its fiscal policy with a cash-based Debt Brake rule.
[23]: 25 Accrual accounting in the public sector can be supported by different accrual-based standards for government financial reporting.
Australia, Canada, the UK, and the US adopted central government accrual accounting around a decade later, and a wave of European countries followed.