Checkpoint: Accrual Method

Topics: Non-profit organization, Finance, Voluntary association Pages: 2 (345 words) Published: January 23, 2011
1. CheckPoint: Accrual Method

• Answer the following questions in 200 to 300 words:

o Nonprofit organizations are required to produce financial statements based on the accrual method of accounting. How is this different from the cash basis of accounting? Why is accrual accounting important?

o In an accrual system, does revenue equal cash?

o What is the importance of the statement of cash flow in the financial management of an organization?

• Provide at least one resource to support your answer, using APA guidelines.

• Post your answer as a Microsoft® Word attachment.

The accrual method of accounting and the cash basis of accounting are different in the way that they record transactions. With cash basis accounting, the agency records money to its book once it is received or when it leaves their system. The accrual method, though, records a transaction when it happens, even if they do not receive money for it yet.

Accrual accounting is a more accurate portrait of the nonprofit organization’s finances. If they supply a service they immediately record the cost of that service. This point of view is important because it is more accurate than the cash basis form of accounting, which only documents income when cash comes into the organization.

The statement of cash flow is of fundamental importance to an organization’s financial management. This statement gives the organization a breakdown of every transaction that comes in or out. This is totaled up over a particular time period. If there are any differences in the organizational transactions, the statement of cash flow makes this clear.

The financial stability of an organization rests on what money they make or spend every day. The organization might go bankrupt if they do not track how their money is spent. These accounting practices offer solid documentation of where money goes....
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