Connection 2015 Issue 3 Technology That Works
People Who Care
Association Management Tips: Understanding Cash vs. Accrual Accounting Scott Hermansen, CPA, Chief Financial Officer
W
hen our association management services division first begins working with new associations, we are often asked about using the cash vs. accrual basis of accounting. Many smaller or newer associations, especially if they are volunteer run, use the cash basis of accounting and question the appropriate time to transition to accrual. The first step in making this decision is to fully understand each option.
CASH BASIS Revenue is recorded when received Expenses are recorded when checks are generated Accounts Receivable and Accounts Payable are not needed, since income and expenses are handled as they come about
ACCRUAL BASIS Revenue is recorded when it is earned Expenses are recorded when incurred A Statement of Financial Position or Balance Sheet tracks revenue (accounts receivable) and expenses (accounts payable) which are recorded before the actual transactions are completed
For example, when an association with a calendar fiscal year holds an annual conference in December, the differences in cost and accrual accounting truly stand out. Using the cash basis, revenue would be recognized in October and November as registration money is received. Most expenses would be recorded in the following year when invoices from the hotel and other vendors are paid. If the same organization uses the accrual basis, all continued on page 2
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Published by Applied Measurement Professionals, Inc. © 2015