Accrual Method

Topics: Income statement, Finance, Generally Accepted Accounting Principles Pages: 3 (366 words) Published: August 21, 2011
Accrual Method

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?

With accrual accounting it is easy to recognize when revenues are earned and expenses

are incurred. Under the cash accounting method an non profit agency would not have

any revenues because everything is recorded on a cash in and cash out transactions under

cash accounting. There is never any way to know what expenses may be occurred with

money accounts method.

Why is accrual accounting important? Accrual accounting is important because it gives a

exact portrait of what the agency or business economic circumstances, the organization

proceeds is recorded on the manuscripts when it is actually produced at any rate of when

it is established and the remaining revenues for each era. In other words it shows a

obvious representation of an organization economic standing for a financial era.

In accrual system, does revenue equal cash? No it never does equal cash because cash

financial records depend on the proof of payments of income such as deposits or checks

and expense from consumers. Depending on the period in which money is earned is how

revenue is based.

What is the importance of the statement of cash flow in the financial management of

an organization? It’s important because it give detail changes in money and provides

information associated to the company working, endowing and financing activities in a

way to transport advantage to diminutive breakdown and money arrangement of the

company. Money activities are broken down into three major categories of cash in

and out flows.

For example: one would have operating, investing, and financial activities. Under

Operating activities contain currency consequences of contracts by remaining earnings or loss is

resoluted. Investing activities...
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