Wiley Not-for-Profit GAAP 2017

2Cash versus Accrual-Basis Accounting

1. Perspective and Issues
2. Concepts, Rules, and Examples
   1. Advantages of Cash Basis
   2. Advantages of Accrual Basis
   3. Combination Cash Accounting and Accrual Statements
   4. Modified Cash Basis
   5. When Accrual-Basis Reporting Should Be Used
3. Legal Requirements
4. 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 “special purpose framework” of financial reporting 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, as well as include disclosures similar to those required by GAAP and any additional disclosures that may be necessary to achieve a fair presentation. ...