Salesforce Certified Nonprofit Cloud Consultant

In Accrual Accounting, when is income reported?

1. When the funds are received

2. When the money is pledged

3. At the end of the fiscal year

4. On the due date of the invoice

The correct answer is: When the money is pledged

In Accrual Accounting, income is reported when it is earned, which is typically at the point when a pledge is made, rather than when the actual cash is received. This method aligns with the principle that revenue should be recognized in the period in which it is earned, regardless of when payment is made. Therefore, the moment a donor or funder commits to give funds (the pledge), that promise constitutes an earning event that can be recognized in financial statements. This approach contrasts with cash accounting, where revenue would only be recognized upon receipt of cash. The correct identification of income under accrual accounting supports accurate financial reporting and gives a more realistic view of an organization's financial status, as it reflects all revenues that are earned within the accounting period. This is particularly essential for nonprofits that rely on pledges and grants, allowing for better planning and resource allocation.