Financial Resources Approach Vs Near-Term Analysis

The near-term financial resources approach and long-term financial resources approach are two alternative recognition approaches for governmental fund financial statements. These recognition approaches provide a wide range of alternatives related to assets, liabilities, deferred inflows of resources, and deferred outflows of resources to be reported on governmental fund financial statements.
The near-term financial resources approach or near-term approach focuses on a near-term view for both governmental fund activities and flows of financial resources. This approach is more of a cash approach and reports spending and financial resources available for spending that were acquired during the reporting period in the financial statements. Financial

Long-term receivables and debt would be recognized when payments became due. Examples of assets include cash and investments, accounts receivable, property taxes, both of which are due within the near term, and long-term receivables that are matured. Examples of liabilities would include accounts payable, accrued interest payable due within the near term, unpaid balances due on long-term operating debt or capital-related debt, and net pension benefit liabilities. Outflows of resources would be recognized when spending occurs for the period. The near-term approach would reflect a net position of the remaining amount of the near-term assets, liabilities, and inflows and outflows of resources at the end of the

Even though this approach may be more consistent, it may bring about its own inconsistent aspects. Another disadvantage of this approach could be an overstatement of the near-term fund balance. This may show a government has met all its obligations even though it has not. The next disadvantage would be this approach reports inventory as an outflow of resources when the government acquires or pays for the inventory. This would cause an inconsistency when determining interperiod equity. Finally, it is undetermined if a statement of cash flows for governmental funds would be a financial statement presented in this approach.
The long-term financial resources approach or long-term approach recognizes the effects of transactions when they occur, regardless of when cash is received or paid. The long-term approach does not recognize capital assets or the debt related to capital assets. This approach shows information associated with financial assets and liabilities, allowing users to evaluate the ability of the government to meet service needs and pay for financial obligations. Shorter-term information would be provided by using a classified balance