Have you heard your finance person say that she accrued your bill and is for you not to worry about it?
1- The $100 was recognized as an expense for last year even if the bill arrived now and will be paid this year. The idea is to classify expenses when they happened, not when bills are received and paid. In this case, the postage was used up last year and should be classified as a cost for the past year, not this year. You will not see the $100 in the financial statements for this year. It may be paid this year, but the amount belongs to the prior year.
2- The $100 was recognized as an expense for last year’s budget. The actual activity happened in the past and were budgeted for then, regardless of when the bill is received and paid. For example, if you had an event in 2015 that required postage because of brochures or other materials, the expense happened in 2015 and belongs to 2015 budget, not 2016.
Accruals relate to the past -- The accrual business is related to the past, not for items that are prepaid. For example, if an organization pays today for three years’ insurance to save money, this amount will not be accrued because the insurance belongs to current year and future years. If instead you paid now for insurance that was used up last year, maybe for a special event that happened last year, then the amount will be accrued.
Accrual list -- Usually, at year-end, accountants keep a list of accrued expenses that can be long and contain amounts that are estimates. When asked how a bill was processed, finance folks are likely to look into this list to see if they accrued the expense last year, so they don't double count it.
Accounting rules --Note that accountants follow rules regarding accruals that are neither flexible nor negotiable. For example, they cannot take an accrual out from last year just because someone asked them to do so. There must be documentation to prove that the activity really belongs to this year and not last. Auditors also typically look into accruals to make sure they are reasonable, so the accruals are not done in a pick-and-choose fashion.
If faced with an accrual of your bill, don’t go into panic mode. The bill was or will be paid, but the expense is shown as last year’s expense on the financial statements. If you disagree with the timing of the expense, show your documentation proving that indeed the expense belongs to this year and not last. You could show your own backups and data to prove your point.
See more here:
Nonprofit Financial Statements blog
Budgeting for Nonprofits blog
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