Wiley Not-for-Profit GAAP 2014: Interpretation and Application of Generally Accepted Accounting Principles

2 CASH VERSUS ACCRUAL BASIS ACCOUNTING

Perspective and Issues

Concepts, Rules, and Examples

Advantages of Cash Basis

Advantages of Accrual Basis

Combination Cash Accounting and Accrual Statements

Modified Cash Basis

When Accrual-Basis Reporting Should Be Used

Legal Requirements

Conclusion

PERSPECTIVE AND ISSUES

Although most of the medium-sized and larger not-for-profit organizations keep their records on an accrual basis of accounting, many smaller organizations still keep their records on the cash basis of accounting. The purpose of this chapter is to illustrate both bases of accounting and to discuss the advantages and disadvantages of each. For financial reporting in accordance with generally accepted accounting principles, the accrual basis of accounting must be used. However, the cash basis of accounting is a recognized “other comprehensive basis of accounting” and an independent auditor may opine on cash-basis statements as long as the statements (and the auditor's opinion letter) clearly indicate that the cash-basis financial statements are not presented in accordance with generally accepted accounting principles. The cash-basis financial statements should also provide a description of the cash basis of accounting, including a summary of significant accounting policies, and how those policies differ from GAAP, include disclosures similar to those required by GAAP and any additional disclosures that may be necessary to achieve a fair presentation. Recently revised auditing ...