Accrual Accounting Methods
HSM 260
Due: May 2, 2013
Instructor: Regina Campbell

Human Health Services organizations apply for grants in order to subsidies their program financial needs. Some apply for private funding as well, but in order for the organization to make sure that they are not paying double invoices and the money is used for its intended program, they have accountants that use the universal accounting method called the Accrual Accounting Method. Accountants have been using this method for organizations as well as business entities. Service provided and or goods delivered to the organization for which a bill has not been submitted, the organization would and completed by the contractor. Sometimes the bill are not generated at that particular time and the organization want to match the billing statement to the account in the revenue on the financial statement in order to make sure that it coincides with each other. This is a way for the organization also not to pay an invoice more than once. If the organization make payment at the time of service and receive a bill a month after, the organization would pay that bill believing that it was not paid. By using the accrual accounting method, this mistake would not happen.
The accrual accounting method is also a form of organizations using products for credit or receiving service for credit. Although the item is not paid for at the time of service, the organization is anticipating that in the future that payment would be made and it would balance out the credit method. When the transactions is first made, even if cash is not the source of payment, the accrual accounting method is treating the transaction at the time of service as cash and this does not cause the organization financial statement to have outstanding debts or cash flow. This is very important to organizations because the programs they have to assist people rely on the constant generation of finances, and if they have to wait until the actual monies is paid, the organization would not be able to stay afloat, which can also lead to the program limiting services or at worst, closing. According to Investopedia “Even though cash isn't yet in the bank, the sale is booked to an account known in accounting lingo as "accounts receivable," increasing the seller's revenue.” (Para. 5). If organizations had to rely on receiving payment when it comes in from funding companies at their leisure as opposed to receiving it at the point of sale, the accounting statement would never be accurate and the organization would not know if where there standings are in the financial aspect.

Reference:
http://www.investopedia.com/terms/a/accrualaccounting.asp