Сash-Based and Accrual-Based Accounting in Non-Profit Organizations: a Neo-Institutional Perspective

Abstract

The purpose of this study is to substantiate changes in the accounting practices of non-budgetary non-profit organizations caused by the application of either the accrual method or the cash method, using the analytical framework of neo-institutionalism. The article explores the specifics of forming the accounting basis for non-budgetary non-profit organizations amid the transformation of the third sector of the economy, driven by social challenges and globalization processes. The accounting basis, which encompasses both the cash and accrual methods, is interpreted in Western theory as a key element of accounting methodology that defines the principles of recognition, measurement, and representation of financial transactions. To explain contemporary changes in accounting practices, the study applies neo-institutional theory, particularly the concepts of legitimacy and isomorphism. Within this theoretical framework, it is argued that the implementation of the accrual method in the operations of non-budgetary non-аprofit organizations is not merely a technical decision but a socially conditioned process comprising five stages: decision-making, data transformation, implementation, reproduction, and institutionalization. The article compares the advantages and disadvantages of the accrual and cash methods. A comparative analysis of financial management elements across commercial enterprises, public institutions, and non-budgetary non-profit organizations reveals the unique functioning of the latter and its impact on accounting practices. A neo-institutional approach is presented to analyze influencing factors and the stages of accrual method implementation in the accounting systems of non-budgetary non-profit organizations. The study also synthesizes international research findings on the use of the cash and accrual methods in various countries, including the United Kingdom, France, Australia, and New Zealand, where the cash method is permitted for small charitable organizations. The results confirm that the accrual method dominates contemporary accounting practices in non-budgetary non-profit organizations; however, its application requires critical reflection, considering the specific nature of the non-budgetary non-profit sector.