How are expenditures defined in governmental accounting?

In governmental accounting, expenditures are generally defined as outflows that occur when a governmental fund incurs a liability. This concept is crucial because it aligns with the modified accrual basis of accounting that most governmental entities use, which recognizes expenditures at the point when the liability is incurred rather than when cash is actually paid out. Therefore, when a government entity makes a promise to pay for goods or services, or when it is legally obligated to pay, an expenditure is recognized at that moment.

This definition is appropriate because it captures not only cash transactions but also liabilities that the government has committed to settle, reflecting a more accurate picture of financial activity during the period in question. This method helps to provide a clearer understanding of a government's fiscal responsibilities and the obligations it has undertaken, ensuring the financial statements present a true image of its financial position.

In contrast, options that limit expenditures to the purchase of non-current assets or focus solely on cash outflows do not encompass the broader scope of expenditures that include liabilities for various other types of transactions. Meanwhile, inter-fund transactions may not consistently reflect the essential liabilities required for a complete and accurate understanding of government expenditures. Thus, recognizing expenditures upon the incurrence of liabilities offers a comprehensive viewpoint on governmental financial operations.