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Charity fund accounting

  • 182 posts
  • # 114844

This is new to me. Can anyone advise me of the accounting procedure?

A charity receives donations and it also has a building fund - saving up for a repair job. Now take a hypothetical case of two gifts. One is for £100 and the other is for £200. The £200 is for the building fund.

So I debit the cash account and then what? Common sense tells me that I should have two income accounts. One for the building fund and one for the 'general' fund. So I end up with £300 in the cash account which goes eventually to the balance sheet and £100 in the general fund and £200 in the building fund. These two are both income accounts so they go to the top of the profit/loss account.

However, looking at previous accounts, it isn't done like that.

The transactions are debit cash and credit income each for 300. Then credit a building fund on the balance sheet for £200, not the p-l. And the debit goes ... where?

Any ideas?

Thank you.


Edited at 17 Mar 2017 09:35 PM GMT

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  • # 114849

Without seeing the full set of accounts it is difficult to answer your question but a possibility might be if the previous accounts treated the donation for the building fund as a Creditor rather than profit income.

There may be restrictions on the donations linked to the building fund? Sometimes if a charity does not hit its target and has to close, monies donated for specific purposes have to be returned to the donator. I agree with you that there should be a separate income account for the building fund, this should be a 'must' if my supposition is correct.

  • 182 posts
  • # 114856

Well thank you very much. I've been thinking about it since I wrote my question. The man before me was a retired qualified accountant. I was therefore unwilling to question his methods. But it turns out he had an excellent reason for doing what he did. You might be interested.

What he was doing was this. Donations come all at once - to a mix of funds. So if there was a donation (church collection in this case) of £500 and £100 was for the building fund, he debited the current account with £500 and split the credit into £100 for the building fund and £400 for the general fund. But the £100 went directly to the balance sheet as a liability and only the £400 went to the profit and loss account.

Now that seemed very odd to me - but he referred to the building fund element as deferred income. I wasn't familiar with this term so I found a definition on the internet

Deferred income is where we have been paid by a customer [or received a donation in this case] but haven’t actually earned the income [or done the work] yet. It would occur in a situation where a customer [donor] is paying [donating] in advance for goods [work] that we are going to deliver [do] in the future.

The internet says this is all part of the matching principle. So - by that definition - he is absolutely right.

I still think you are right though because this isn't a competitive company, it's a charity that has to openly display it's restricted funds rather than tuck them away near the bottom of the balance sheet.

So I think you're right - but he had an excellent reason for doing what he did. I'm looking around to see what other charities do but nobody seems to treat it like he did.

Thank you for answering my question. I think we can consider the topic closed unless you want to get back to me.

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  • # 114865

Thanks for the update, I wasn't aware of this either despite being involved with a charity.

I also found this on charitysorp.org  for anyone else who is interested.

Where terms and conditions have not been met or uncertainty exists as to whether
the recipient charity can meet the terms or conditions otherwise within its control, the
income should not be recognised but deferred as a liability until it is probable that the
terms or conditions imposed can be met

  • 182 posts
  • # 114889

That sounds interesting. Please would you give me the full URL so I can read around a bit.

Perhaps my predecessor thought there was doubt the church would ever raise enough money.

Peter

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  • # 114913

Hi Peter,

This is where I got the information from:

http://www.charitysorp.org/media/620341/frsse_module-5.pdf

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