What on earth is accrual accounting?

Every member of the board has fiduciary responsibilities, not just the finance or audit committee members. As a board member, don’t you think it would be important to have a basic understanding of the different types of financial reporting. What does the operating cycle and financial data really mean?

What is the difference between cash basis, modified cash and accrual basis of reporting? 

In cash accounting money is recorded as it enters and leaves the building (or account).

Accrual accounting records revenue and expenses as it is earned/incurred. For example, if work has taken place of if a viable donor has unconditionally promised to give a contribution, then we record it as revenue earned. The money is not in the building yet, but the actions that created that money have occurred “unconditionally”, therefore it is earned. It is basically the same with expenses. Under the accrual method, expenses are not recorded when the bill is paid. Expenses are recorded when the action has taken place that caused that expense. Accrual accounting gives certain financial statement users a clearer picture of what is going on within the organization, not just how cash is moving around.

What is modified cash…good question. Watch for further discussion.