​Cash or GAAP: Which Is Right for Your Organization?

Understanding your organization’s accounting and audit needs can get tricky to navigate. The terms get confusing. And it can be challenging to decide which record-keeping method is right for you.

So, let’s take a look at cash vs. GAAP, also known as Generally Accepted Accounting Principles (not to be confused with our GAAP podcast).

Most organizations maintain their internal — and even their external — accounting records on a cash basis.

The cash basis allows for more consistency between budgetary reporting and focuses on cash flow.

For a nonprofit organization that fundraises to cover operating expenses and capital purchases, cash basis allows you to better match your cash inflows and outflows.

Reporting on a GAAP basis for internal purposes at interim periods is usually cumbersome; you have to reverse prior period accruals and record new accruals.

Also, preparing grant draw requests can be complicated if your organization use GAAP basis and relies on grant funding. That’s because federal grant reporting requires an organization to expend funds before requesting reimbursements.

GAAP-based reporting includes reporting items such as:

• Pledges
• Receivables
• Inventory
• Capital assets and depreciation
• Accounts payable
• Accrued expenses
• Other balances

Reporting for the IRS allows for reporting on a GAAP or cash basis so your tax reporting can mirror your financial reporting. The IRS has a much looser definition of cash-basis accounting and allows for different levels of reporting assets and liabilities. Also, you’re not required to report non-cash assets and liabilities.

If you’ve got other audit and accounting questions, our handy guide might help answer them. Or just shoot us a message.