Cash Accounting Basis for Our Small Church?
Using Cash Basis Accounting for a Church
I have a fundamental question with regard to the use of a cash accounting basis for our small church in Washington, DC.
Is it appropriate to use a cash basis when setting up the church financial. Or is the fund or GAAP basis the preferred method of accounting?
P.S. Thanks so much for setting up the site. I have found a lot of useful information here regarding fund accounting.
Most small churches use the cash basis in their fund accounting system...for their internal reporting.
Be aware that some third parties such as lending institutions require churches to use accrual basis accounting and adhere to GAAP (Generally Accepted Accounting Principles) guidelines.
Cash and accrual methods differ only in when income and expenses are recorded.
Under the cash method, income (offerings, fundraisers, etc.) is not counted until cash (or a check) is actually received, and expenses are not counted until they are actually paid.
Under the accrual method, transactions are recorded when the order is made, the item is delivered, or the services occur, regardless of when the money for them (receivables) is actually received or paid.
Fund accounting is something totally different It is a system of accounting based on separating information into groups which reflect donor-imposed restrictions.
So you would need to determine if you are going to use the cash or accrual method in your fund accounting system.
Hope this makes sense to you. Church accounting is so different and it can be kind of confusing until you learn the basics of it :-)