Accounting Techniques
Cash Accounting
Financial statements prepared on the cash basis are very simple to construct. Revenues are recognized when the money has been physically received and expenses are recognized when money is disbursed.
Accrual Accounting
Financial statements prepared on the accrual basis are much more difficult to prepare and usually require a trained accountant. However, they are usually more informative and provide for better planning. In accrual accounting, revenues are recognized when they have been earned, even if the organization hasn’t received the money. Expenses are recognized when they have been incurred, even if the organization hasn’t paid the expense. Additionally, accrual accounting attempts to recognize revenues and expenses in the period the revenues have been earned and the expenses have been incurred. This is called the matching principle.
Internal Control Checklist
Do different people receive, process, and deposit cash received? Are deposits made on a timely basis? Are those people authorized to dispense cash clearly identified? Is the signing of blank or incomplete checks acceptable? Is more than one signature required on checks? Are dues payments reported to other departments? If funds are received from outside sources, are they kept in separate accounts? Are timesheets kept and reviewed?
