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Financial Accounting Methods

The Financial Accounting Standards Board (FASB) establishes accounting procedures to ensure that organizations are following generally accepted accounting principles (GAAP). Leaders need to demonstrate that their organizations are in compliance with these standards and abide by certain procedures and standards as evidence of this compliance. In doing so, organizations usually account for funds using either a cash- or accrual-based process.

In your initial post:

Discuss the differences between cash- and accrual-based accounting. 

Select a nonprofit organization and discuss how cash and accrual-based accounting would affect the way revenue is handled by the organization. 

Select a nonprofit organization and discuss the types of funds this organization uses to account for its revenue.

Use specific examples. Support your post with sources and cite them according to current APA guidelines. Be sure to critically evaluate the concepts and related literature. Address any pro and con arguments.

Response Guidelines

Read the posts of your peers and respond to at least one, either by refuting all or part of the position taken or by adding to it. As you did in your initial post, use your research to support your claims and be sure to cite your sources according to APA guidelines.

Learning Components

This activity will help you achieve the following learning components:

Analyze best practices for financial accounting in nonprofit organizations.

Describe the types of funds commonly used by nonprofit organizations.

Resources

Studies

Readings

In your Budgeting and Financial Management for Nonprofit Organizations textbook, read the following:

• Chapter 5, “Basic Principles of Accounting and Reporting Requirements,” pages 88–110. 
• Chapter 6, “Understanding Financial Statements,” pages 112–131. 
• Chapter 7, “Financial Analysis,” pages 132–150.

Use the Capella University Library to read the following:

• Chiaravalloti, F. (2014). Performance evaluation in the arts and cultural sector: A story of accounting at its margins. The Journal of Arts Management, Law and Society, 44(2), 61–89.

Use the Internet to read the following:

• National Council of Nonprofits. (n.d.). Nonprofit annual reports. Retrieved from https://www.councilofnonprofits.org/tools-resource…

Optional Readings

You may find the following ebook of interest as you explore the content in this unit. This ebook is optional and reading it is not required. Use the Capella University Library to access it.

• Marinescu, D. (2013). Cloud computing: Theory and practice. St. Louis, MO: Morgan Kaufmann.

You may also find some of the following optional journal articles of interest as you explore the content in this unit. Use the Capella University Library to access them.

• Prentice, C. R. (2016). Why so many measures of nonprofit financial performance? Analyzing and improving the use of financial measures in nonprofit research. Nonprofit and Voluntary Sector Quarterly, 45(4), 715–740.
• Prentice, C. R. (2016). Understanding nonprofit financial health: Exploring the effects of organizational and environmental variables. Nonprofit and Voluntary Sector Quarterly, 45(5), 888–909.
• Todd, D. (2015). Tips for evaluating financial management systems. Nonprofit World, 33, 17–18.
• Tweedie, D. (2016). Addressing practical barriers to not-for-profit accountability. Governance Directions, 68(9), 522–525.

Learning Components

This activity will help you achieve the following learning components:

• Identify the key financial reports that describe the financial operations of a nonprofit organization.
• Explain the purpose of the financial reports commonly used by nonprofit organizations.

Please reply

u3d1 – J. Lake

COLLAPSE

Weikart et al (2013) explain the two primary types of accounting methods as cash and accrual. They describe cash accounting as akin to ‘checkbook’ accounting wherein cash receipts and expenses are recorded at the time of the transaction, similar to how individuals register their cash transactions in a personal checking account (p. 94). Weikart et al (2013) go on to state that this type of accounting method is used less frequently within nonprofit (NP) organizations. Moreover, Weikert et al (2013) describe the more commonly used method of accrual accounting in that all transactions are recorded whenever they occur, regardless of when actual cash exchanges hands or is transacted electronically (p. 94).

The NP that I work for, Parents Resource Institute for Drug Education (PRIDE), is one of the rare ones who uses cash accounting and records all transactions using the QuickBooks accounting software. According to its latest Form 990 from the Guidestar website (n.d.), PRIDE utilizes this accounting method wherein all receipts and expenses are recording at the time of the transaction rather than accrued and held for later reporting. This is due in large part to how PRIDE is funded, which is through a Substance Abuse Block Grant (SABG) from the Alabama Department of Mental Health (ADMH). PRIDE receives grant funds not up front in a lump sum, nor in fixed monthly installment amount, but rather funded after the fact at the end of when services are performed and the requisite documentation is sent to receive payment after service delivery is confirmed by ADMH. As such, it is important for the leadership at PRIDE to know at any given time how much cash is on hand to ensure it does not overrun its bank account with monthly expenses that are higher than the revenues that are paid in arrears after services are performed to avoid an overdrawn checking account.

Reference

Weikart, L.A., Chen, G.C., & Sermier, E. (2013). Budgeting and financial management for nonprofit organizations: Using Money to drive mission success. Thousand Oaks, CA: Sage Publications, Inc

Guidestar Website. (n.d.). Parents Resource Institute for Drug Education Inc of Tuscaloosa. Retrieved July 28, 2021, from https://www.guidestar.org/profile/63-0904545