Hsm Week 4

Accrual accounting is a method that measures the company's success and performance not by the amount of cash coming in  but on the revenue that was earned and when expenses where brought on to the accompanying accounting allows for a better system of budgeting and planning because it looks at the liabilities are incurred and revenue is earned and not when cash is paid. Accrual method should be used by an organization when it starts with large amounts of funding, staff,and has plans to raise more funds through foundations or government entities. When it come to revenue and cash in the accrual method it doesn't always equal because the cash account is related to the cash basis white the revenue is not. Revenue on accrual method is based on the period that they are earned while cash is based on payment of client invoices. The cash flow statement is important in the financial management of an organization because it allows either the owner, manager, or bankers to view the performance of the organization from a cash perspective. Through the cash flow statements you are able to see and understand how the organization’s operations are running and where growth funding is coming from, and also your able to see how the money is spent. The cash flow statements also shows where the source of cash including operations, financing, and investing.

Resource:
Wright, T. (n.d.). Why Are Cash Flow Statements Important When Assessing the Financial Strength of an Organization? Retrieved April 2, 2015, from http://yourbusiness.azcentral.com/cash-flow-statements-important-assessing-financial-strength-organization-13389.html