The main difference between cash and accrual accounting is the timing of when revenue and expenses are recognized in the books.
- Cash accounting records revenue when money is received (Actually Collected) and expenses ( Actually Spent) when money is paid out.
- VS.
- Accrual accounting records revenue when it is earned and expenses when they are incurred (Billed but not necessarily collected yet). If your chapter was able to collect 100% of all charges assessed, that would mirror your accrual reports.
Cash:
is used when cash goes in and out of the business. This is a very simple method that only accounts for cash received or paid. A chapter records transactions as revenue whenever cash is received ( Members pay their dues and fees)and as liabilities whenever cash is used to pay any bills (Paying a vendor) or liabilities (Paying Back Security Deposits).
Accrual:
The accrual accounting method records revenue as it is earned. This means that a Chapter uses the accrual method to account for money that it expects to receive in the future. For instance, a Chapter that delivers billed its members for a full year of membership and bases its budget on the amount billed with the expectation of a 100% collections rate, even though it hasn’t yet received payment. Similarly, liabilities are accounted for even when the Chapter hasn’t yet paid for any expenses.