Interest on long-term debt generally is not recorded as an expenditure in the Debt Service Fund until it becomes legally due.

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Under modified accrual accounting, interest on long-term debt is not recorded as an expenditure until it becomes legally due (matures), rather than being accrued based on the passage of time, as is the case in full accrual accounting. The reason for this practice is that most governments' budgetary appropriations provide only for bond principal and interest that come due during the fiscal year. Accruing a liability before payment is legally due could result in a debit balance (a deficit) in the government's fund balance account. An accrual is not made because the liability is not yet due to be paid and, as a result, resources are not required to be available.

Interest on Long-Term Debt Generally Is Not Recorded as an Expenditure