FIMS Basis of Accounting

FIMS Basis of Accounting

FIMS can accommodate the methods of accounting normally employed by charitable organizations, which represent variations of the cash and accrual methods:

Cash Basis – The cash basis of accounting only records transactions when cash is received or paid out. This method works well when the results that would be reported under the accrual and cash basis are not materially different from each other. One problem that the cash basis presents for charitable organizations is that many organizations report their asset value based on the market value instead of the book value. The cash basis only recognizes book value and realized gains and losses as they occur. Many organizations also prefer to recognize liabilities incurred when Grants are voted. This provides a more accurate picture of the organization’s financial position. FASB guidelines also require the modified cash or accrual methods.

Accrual - The accrual basis of accounting requires organizations to recognize and record both income and expenses at the time the organization and a second party (for example, a Grantee, Donor, or Vendor) agree to exchange cash for some specific purpose. On the revenue side (given the number of securities normally owned by a charitable organization), tracking interest and dividends as they are declared rather than as they are received may be impractical for many charitable organizations.

Modified Accrual – The modified accrual basis is a compromise between cash and accrual accounting. All Grants and expenses are recorded as liabilities, but most revenues (for example, interest and dividends) are maintained on the cash basis. In many instances, Pledges (promises) receivable will be recorded as accrued items. Some organizations may keep their books on a cash basis throughout the year and adjust the financial position to reflect the modified accrual method at year-end.

The FIMS Accounts Payable module can accommodate either a Cash basis (no entries are made to the General Ledger Journal until a payment is made) or an Accrual basis (vouchers credit payables and debit expenses, payments credit cash and debit payables). Refer to Setting the Accounting Method in the Accounts Payable module for more information.

On the investment side, the FACTS module can track realized and unrealized gains and post unrealized gains to an asset account (adjustment to market) representing the accumulated unrealized appreciation. In this case, the main pooled asset account represents the book value, and the market value is the sum of the balances in the book asset account and the adjustment to market account.

Common Debits and Credits in FIMS – Accrual Basis