Hsm/260 Week 2

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Accrual Method
HSM/260 Melissa Vance 11/29/2012

There is one major difference between the accrual method of accounting and the cash basis of

accounting and that is that in the accrual method, the amount that is entered into the books is one that

has either not yet been paid or paid in full. The cash basis method of accounting revolves around the

basis of cash already received. Perhaps a better explanation of accrual accounting is that money that

has not yet been received can be recorded down on the books as payment received.

For a nonprofit business, the accrual method of accounting works better for the company. If they

were to use the cash method of accounting, then an amount would only be recorded when cash was

received for a service performed. The accrual method works much better because as soon as a service

is provided the amount owed is entered into the books.

The cash statement is important in any organizations financial management. The financial statement

gives the organization an accurate summary of all transactions flowing in or out of the organization.

Just in case there happens to be any discrepancy in the organizations finances, the cash flow will show

this problem right away.

All organizations financial stability rests on how much money they make and spend. An

organization must make sure that they are not spending more than they make so the organization does

not have to fear bankruptcy. With these accounting practices organizations can keep track of their

spending so they do not get into trouble.
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