Finance Committee FAQ4

Accounting Conventions

Fiscal Year – Unlike most individuals and the majority of businesses who use the calendar year as their fiscal year for financial reporting, RCOS utilizes a fiscal year that begins July 1st and ends the following June 30th. The choice of the fiscal year stems from several factors. The Hebrew calendar begins in the fall. The religious school runs from September to June. Membership interest peaks before the commencement of the high holidays.
Basis of Accounting – RCOS utilizes the “modified cash basis of accounting”. This selection is a compromise between the cash basis and the accrual basis. The cash basis of accounting is the simplest approach and is used by the large majority of small businesses and, according to the URJ, the majority of Reform synagogues. Using this method, the records only reflect cash transactions. As examples, dues are recognized when we receive the cash and expenses are recorded when we pay the bills. In contrast, the accrual method of accounting is much more sophisticated, requires substantially more accounting effort and is used by most larger companies. It recognizes revenues when they are earned and expenses when they are incurred. Continuing with the example, dues would be recorded as they are earned, so 1/12 of each member’s annual pledge would be recorded as revenue each month. Expenses are recorded when a vendor provides a service, not when the bill is paid. If a bill goes unpaid for some period of time, the cash basis of accounting would not show the expense until the bill was paid in a later period. RCOS utilizes a hybrid approach – in the modified cash basis of accounting, our accountant makes accrual entries once a year at the end of each year so that the year end results properly reflect actual operations. At the request of the Board back in 2013, the Finance Committee examined the feasibility of moving to accrual accounting in some detail and concluded that the improvement in accuracy of operating reports during the year did not justify the additional costs of roughly $10,000 per year to implement.

Fund Accounting - As a non-profit entity, proper accounting requires that we maintain three separate accounts of the Temple’s funds depending on the source of those funds.

Unrestricted Funds – Monies received with no strings attached. For example, dues revenues are provided for the general use of the Temple with no limitations. Our general operating account, which covers the routine annual operating revenues and expenses is a good example of an unrestricted fund.

Temporarily Restricted Funds – Monies donated for a specific purpose, but where all of the monies can be used to achieve the stated purpose. As an example, a donation to the Music Fund can be used in its entirety to support the music program.

Permanently Restricted Funds – Monies contributed with the condition that only the income generated by the principal of the fund may be used. The Cemetery Fund is a good example, in that the principal may never be used and the income generated by the fund should be used to pay for the operation and maintenance of the cemetery in perpetuity.

Permanently Restricted Funds – Monies contributed with the condition that only the income generated by the principal of the fund may be used. The Cemetery Fund is a good example, in that the principal may never be used and the income generated by the fund should be used to pay for the operation and maintenance of the cemetery in perpetuity.