Charity Accounts

Ellabobbin

Hi,

I'm preparing the accounts for a small charity I work for and wonder if someone can clarify a couple of things for me.

The charity is small (income less than £70K) and so could prepare their accounts on an income and expendtiure basis, however they previously have been prepared on an accruals basis and so for continuity I am doing the same.

Several years ago they started to receive a portion of their funding for the next financial year at the end of the current financial year. This was not adjusted for and so the first year they had a large surplus of income over expenditure. Every year since the payment has been received at the end of the financial year and not accrued.

I am now in a quandary as to the best action to take. If I make a year end adjustment to show the payment in the new financial year they will then have a excess of expenditure over income since the adjustment was not made at the end of last year.... But if I don't adjust they will have accounts prepared on an accruals basis, which show as income for the year funding which is for the next financial year.

Secondly, they sell a few t shirts and sweatshirts on which they make a minimal profit. The manager gave me a list of all stock held at year end which I used to calculate the closing inventory. However when I calculated the cost of sales it was apparent that the figure could not be right as the cost of sales was too low for the income. The figures involved are not huge - COS £82.50 Income £172.50 and so I am tempted to let this go. I have informed the trustees of the error and we have counted the current stock level (for one size of t shirt we now have more than in the stock take and so it was definitely inaccurate!).

I have put some measures in place to ensure that the figures at the end of next year are accurate, and thus after this year's accounts where the opening inventory figure will be too high the figures will be reliable.

If anyone can advise of the correct action to take with regards to:

a) funding received annually in advance for the next financial year but never adjusted and
b) a slightly inaccurate stock figure

I'd be most grateful

Thank you

reader

"The charity is small (income less than £70K) and so could prepare their accounts on an income and expendtiure basis, however they previously have been prepared on an accruals basis and so for continuity I am doing the same."

I thought income&expenditure was the same as accruals? Do you mean receipts&payments basis rather than income&expenditure?

"But if I don't adjust they will have accounts prepared on an accruals basis, which show as income for the year funding which is for the next financial year."

Surely if you don't adjust, the accounts have been prepared on a cash basis (not accruals as you have stated)?

Anyway, re: income adjustment, I would not bother making the adjustment, if you do make the adjustment expenditure will exceed income and this is not true and fair, and would therefore mean the accounts are useless for decision making / stewardship purposes.

Re: closing stock, given cost seems lower than expect (and not the other way around) and given the numbers are so small, I would agree with you and just ignore inaccurate stock take.

As always, I welcome corrections.

Regards

Level 4 student

Ellabobbin

Hi,

Sorry yes receipts and payments!!

My concern is they have previously made adjustments for other income received in advance and outstanding invoices, it is only the funding which has not been adjusted.

wildgoose1uk

You could consider restating last years accounts for an accurate comparative with appropriate notes.

PGM

If the accounts follow the SORP accounting by charities, all the income received during the year will be displayed as income, and then held on the balance sheet as designated funds.

RAS

Probably a bit late now anyway. You will need to look at the SORP guidance on recognition of income as can depend on the circumstances of the funding whether it should be deferred or not and can be quite technical. If the conditions of the funding stipulate that must be expensed in the following year/s then should be deferred. As I say have a look at the SORP closely.