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Accrrual Method

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The difference is financial statements must be prepared at least each fiscal year for accounts receivable and accounts payable and must include the organizations/agencies financial activities throughout the year. Sometimes financial statements will be done quarterly or even monthly just to keep an eye on the finances, depending on the organization, but are only required to do so annually. In a non-profit agency they would not have an accounts payable and accounts receivable because they would not have any of these types of accounts in their agency. Cash accounting is the less desirable, it only accounts for part of the costs. They never really have a strong sense or knowledge of what there revenues are or expenses, leaving them with unwelcomed endings or surprised outcomes(Lawrence,2011). Accrual accounting is important because you take your projected cost, variable costs to predict what your spending will be for the fiscal year.

An accrual system generally does not include revenue to equal cash, revenue is like a credit in accounts receivable or accounts payable if you bill the customer. The importance of the statement of cash flow in financial management of an organization is , it allows an agency/organization to know and see what money is coming in and going out of the agency. It allows them to know what cash is available for use and allows the agency to be able to determine if the cash flow will stay the same, decrease or stay even to the cash going out in the future months. It also will allow them to budget for the following year, to see what the need to cut back on or have extra dollars to put into specific areas of concern. For some agencies this works, while others prefer the financial statements because they are more detailed. References: Financial management of human services administrators, chapter 3, understanding financial statements, Pearson education, 2011.

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