Should we use accrual accounting?

Summary:

The accrual method is generally regarded as the standard.

Answer:

Someone asked in CharutyTalk (a service of CharityChannel.com) on
February 10, 2000:
We are just setting up a new bookkeeping system (in QuickBooks). We have been using cash basis accounting, and it is easier to continue that method. Have NPOs found it necessary or desirable to use accrual based accounting? We are a small organization with a $100,000 budget and one employee.

Nathan Garber answered with this note on February 11, 2000:
I would check with your accountant or auditor about this.
Accrual is the preferred standard because it more accurately shows the relationship between an expense and the revenue which pays for it.

I don't know of any NPO's with staff and a budget big enough to pay for them that does not use the accrual method.

Nathan Garber & Associates

Consultants to Nonprofit Organizations

London, Ontario, Canada  N6A 3K1

Margaret DeBoe added:
I agree that, in a perfect world, accrual would be preferable. However, it's substantially more complicated than the cash basis. You have to weigh the advantages of more accurate reporting with the difficulties involved, especially if your "bookkeeper" is not a trained professional.

Many smaller nonprofits find it much easier to keep their books on the cash basis but have their bookkeepers or accountants produce accual basis statements at the end of the year.

Margaret DeBoe, CPA

Rubino & McGeehin, Chartered

Bethesda, MD

(301)564-3636

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Posted 2/11/00 -- PB