Accrual Method and cash basis accounting
Checkpoint Accrual Method Non-profit organizations has two methods they use (1) accrual accounting method and (2) cash basis accounting. The accrual accounting method is what non- profit organization’s use it allows for the organization to keep track of all financial statements, cash transactions, expenses coming in and going out. All revenue the organization receives the accrual method would create an account for outstands cash flow.
The difference between accrual accounting method and cash basis accounting method is how they record their revenue and expenses in a timely matter. The accrual accounting method is used to account for revenue when it’s earned and expenses goods and services when they are incurred. The cash basis method only accounts for revenue only when the money is received and for expenses when money is paid out.
According to (Investopedia, 2013) it’s the accounting method that measures the performance and position of a company by recognizing events of when the cash transactions occur. By matching revenues to expenses (the matching principle) when the transaction occurs rather when payments is made (or when payments are received).
When using the accrual accounting method the cash balance will not equal the revenue balance, because transactions may have an equal debit to a cash account and credit to a revenue account. Example: if a company gives credit to a customer, the revenue account will increase upon making the sale, while the cash account will also increase but only with a receipt of payment.
The statement of cash flow is important to an organization’s financial management. The statement helps to understand the breakdown’s of all transactions that comes in and that goes out of the organization. If there are differences in the organization transactions, that when the statement comes into play, making everything much clearer to
The difference between accrual accounting method and cash basis accounting method is how they record their revenue and expenses in a timely matter. The accrual accounting method is used to account for revenue when it’s earned and expenses goods and services when they are incurred. The cash basis method only accounts for revenue only when the money is received and for expenses when money is paid out.
According to (Investopedia, 2013) it’s the accounting method that measures the performance and position of a company by recognizing events of when the cash transactions occur. By matching revenues to expenses (the matching principle) when the transaction occurs rather when payments is made (or when payments are received).
When using the accrual accounting method the cash balance will not equal the revenue balance, because transactions may have an equal debit to a cash account and credit to a revenue account. Example: if a company gives credit to a customer, the revenue account will increase upon making the sale, while the cash account will also increase but only with a receipt of payment.
The statement of cash flow is important to an organization’s financial management. The statement helps to understand the breakdown’s of all transactions that comes in and that goes out of the organization. If there are differences in the organization transactions, that when the statement comes into play, making everything much clearer to