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Accrual vs. Cash

Accrual accounting - and budgeting - matches income and related expenses in the same fiscal period, regardless of the timing of the receipt or disbursement of actual cash.  Many small and midsize nonprofit organizations operate on a modified accrual basis - that is, mostly on a cash basis except for year-end adjustments for accrual.  

An organization's financial plans should include budgets for operations and for capital.  Together these comprise what I refer to as an Organizational Budget.  The annual operating budget was discussed in previous sections of this web site.  In this section we will discuss the terms and concepts involved in creating the capital budget.

"A budget is the numerical expression of an organization's dreams that serves as a guide or measure of acceptable financial performance."

Judy Blazek from Financial Planning for Nonprofit Organizations

The budget process is the way an organization goes about building its budget.  A good budgeting process engages those who are responsible for adhering to the budget and implementing the organization's objectives in creating the budget.  Both finance committee and senior staff participation is built into the process and a timeline is established leaving adequate time for research, review, feedback, revisions, etc. before the budget is ready for presentation to the full board.