Glossary
Accounting Basics

Accrual Basis

By: Alec Hollingsworth
Updated:  
June 2, 2025

DEFINITION:

Accrual basis records income and expenses when they are earned or incurred, not just when cash is exchanged.
Accrual basis accounting is a method where financial transactions are recorded when they are earned or incurred, regardless of when cash is actually received or paid. This approach recognizes income when it is earned (such as when a service is provided or a donation is pledged) and records expenses when they are incurred (such as when goods or services are received), not just when cash changes hands. This provides a more accurate picture of an organization’s financial position, as it matches revenues to the expenses incurred in earning them. Nonprofits often use accrual accounting to comply with generally accepted accounting principles (GAAP), ensuring their financial statements reflect all obligations and resources, giving stakeholders a clearer understanding of financial health.

Key Takeaways

  • Records transactions when earned or incurred, not when cash changes hands
  • Offers a more accurate financial picture
  • Required for GAAP compliance
  • Helps match revenues with related expenses

Why It Matters

It provides a more complete, accurate financial picture for decision-making and compliance.

Real World Example

A nonprofit receives a pledge in December promising $5,000 to be paid in January. Using accrual basis accounting, the nonprofit records the $5,000 as income in December, when the pledge is made, rather than in January when the cash is received. Likewise, if the organization receives an invoice for services in December but pays it in January, the expense is recorded in December. This approach ensures that the financial statements for December accurately reflect all income earned and expenses incurred during that month, giving the board and stakeholders a clear, timely view of fiscal health.

How Aplos Helps

Aplos supports accrual basis accounting, allowing nonprofits and churches to properly track income and expenses when they are earned or incurred. This ensures that financial reports generated in Aplos accurately reflect your organization’s financial activities, which is crucial for transparency, budgeting, and compliance with accounting standards.
launch trading trade finance startup icon

Try it yourself. Start your 15 day free trial

No commitment or credit card required.

Try it For Free

Frequently Asked Questions

What is the difference between accrual basis and cash basis?

Accrual basis records income and expenses when they are earned or incurred, while cash basis records them only when cash is received or paid.

Why do nonprofits use accrual basis accounting?

Accrual basis accounting provides a more accurate financial picture and is required by GAAP for many nonprofits.

Can I switch between accrual and cash basis in Aplos?

Aplos allows users to choose their accounting basis, but switching methods may require adjustments for accurate reporting.

Does accrual accounting affect budgeting?

Yes, accrual accounting ensures budgets reflect all earned income and incurred expenses, leading to better planning and oversight.

Related Terms

Sub‑Ledger
Mission Trip Fund
Petty Cash
Grant Lifecycle
Chart of Accounts
Donation Receipt

Aplos has everything you need in one place for streamlined nonprofit and church management.

Start A Free Trial

Copyright © 2025 Aplos Software, LLC. All rights reserved.

Aplos partners with Stripe Payments Company for money transmission services and account services with funds held at Fifth Third Bank N.A., Member FDIC.

Aplos

Our StoryTeam AplosCareersReviewsContact UsSecurity

Resources

AcademyAPIPartnershipsReferral PartnersAplos StatusAplos Glossary

Products & Features

Nonprofit SoftwareChurch SoftwareNonprofit AccountingChurch AccountingDonor ManagementNonprofit CRMOnline DonationsFundraising SoftwareText to GiveBill PayPayrollPrepaid Cards

For Customers

Support CenterTraining CenterFind An Aplos Advisor

Compare Us

Compare Quickbooks® For NonprofitsCompare Quickbooks® For ChurchesCompare Sage Intacct For Nonprofits

Services

Nonprofit Bookkeeping ServicesChurch Bookkeeping ServicesImplementation Services
Start A Free Trial

Copyright © 2024 Aplos Software, LLC. All rights reserved.

Aplos partners with Stripe Payments Company for money transmission services and account services with funds held at Fifth Third Bank N.A., Member FDIC.

Legal StuffPrivacy Policy
California Consumer Privacy Act NoticeDo Not Share My Personal Information