What must occur for expenditures to be recorded in governmental accounting?

For expenditures to be recorded in governmental accounting, it is essential that liabilities are incurred. This is based on the accrual basis of accounting that many governmental entities follow, which dictates that expenses are recognized when they are incurred, rather than when cash is actually paid out.

When a governmental entity incurs a liability, it signifies that an obligation has been created, typically because goods or services have been received or have been delivered, even if payment has not yet been made. This concept ensures that financial reports accurately reflect the financial position and operational results of the entity during a specific accounting period, providing a more holistic view of fiscal health and accountability.

While budget approval is crucial in governmental agencies—it authorizes spending—it does not itself result in the recording of expenditures. Similarly, contract execution is related to the commitment of funds but does not recognize an expenditure until liabilities are actually incurred. Reporting of estimated revenues also plays a role in budgeting and planning but does not directly result in the recording of expenditures. Thus, the requirement for recognizing expenditures in governmental accounting hinges on the incurrence of liabilities, aligning with the principles of accrual accounting in financial reporting.