Accruals-based accounting Flashcards
Accruals-based Accounting
This type of accounting is more complex. Accruals are payments or receipts that are due, but haven’t yet been paid or received, which is where the name comes from. Accruals-based accounting also takes into account the tangible assets of an organization.
Accruals-based accounting uses double-entry bookkeeping, which recognizes that there are always two sides to every transaction the
giver and the receiver.
Accruals-based accounting
The terminology used for transactions is income and expenditure. Income is recorded when it is
due or earned, rather than when the cash is actually received.
Accruals-based accounting
The terminology used for transactions is income and expenditure. Expenditures are recorded as they are
incurred, not when the invoices are paid.
Accruals-based accounting method overcomes the issue of
time delays with credit transactions.
Accruals-based accounting method can deal with all types of transactions, including
non-cash transactions like in-kind donations and fixed assets.
Accruals-based accounting means that an
organization has a more up-to-date record of income and expenditures, and a more comprehensive picture of their financial position.
accounts payable and accounts receivable ledgers that contain information on
invoices received from vendors or invoices issued to customers. These two books of account are used in accruals-based accounting
general or nominal ledger, used in accruals-based accounting and serves as
the main book of account
journal register or day book recording non-monetary transactions, for example
recording a donation in-kind or an adjustment to correct an accounting error. This is used in accruals-based accounting
ACCRUALS
Skill level:
advanced bookkeeping
ACCRUALS
Transaction types:
cash and credit
ACCRUALS
Main book of account:
general ledger
ACCRUALS
Non-cash transactions:
yes
ACCRUALS
Accounting system:
double entry
ACCRUALS
Assets and liabilities:
yes
ACCRUALS
Reports:
statement of income & expenditure with balance sheet
Accruals-based books of account for this type of accounting, the main book is
the general ledger, which includes information coming from cashbooks and other ledgers or source documents. It records income when it is earned, not when it is received, and records expenditures as they are incurred, not actually paid.
Which system do you think most medium-to-large NGOs and non-profits use?
accruals-based
They use the simpler cash accounting basis during the year and then, with the help of an
external accounting firm, convert the cash-based figures to an accruals basis at year end for the annual financial statements and audit.
Cash-based books of account is
simple and shows money paid and money received. So, the main book of account is the cashbook, which records receipts and payments when they happen. Note that a cash book is also present in an accruals-based system, but it’s not the main book of account.
