What is the primary objective of a cash basis financial statement in nonprofit accounting?

The primary objective of a cash basis financial statement in nonprofit accounting is to track cash receipts and payments only. This accounting method recognizes revenue when cash is received and expenses when cash is paid out, which provides a straightforward view of the organization's cash position at any given time. Nonprofit organizations often operate under cash constraints, making it crucial for them to monitor actual cash flows closely. By focusing solely on cash transactions, this method allows organizations to maintain a clear awareness of the liquidity available to support programs and operations.

While predictions about future cash flows or assessments of program profitability may be important for the overall financial health of the organization, those objectives are not the main focus of cash basis accounting. Similarly, managing cash outflow is essential for any organization, but again, this goes beyond the simple tracking of cash receipts and payments, making it a goal rather than the primary objective of cash basis financial statements.