Accounts and Reporting

1. What are restricted funds?
These are funds which have been given to an organisation which can only be used for a specific purpose.
For example a Housing Authority has given a Tenants & Residents Association £1,000 to organise a summer fair.
These funds must be accounted for separately and you should be able to show how these funds have be spent at any time.

2. What are cash accounts?
This is a financial report which reflects how much cash has come into and gone out of an organisation.
They are called Receipt & Payment Accounts.

3. What are accrual accounts?
This is a financial report which reflects all the income and expenditure in the financial year regardless of if the actual cash has been received or paid.
Key differences from cash accounts include showing expenditure for goods and services received in the year which have yet to be paid for.
Also for large assets the cost of these purchases are spread over a number of years. These are known as fixed assets and depreciation is charged to the accounts.

4. What is an Independent Examination?
It is a review of the financial accounts which is a minimum legal requirement for charities with income between £25,000 and £500,000. This involves testing to check that no issues are identified that make them believe the financial accounts are wrong.

5. What is the different between and Audit and an Independent Examination?
An audit is a more detailed check of the financial accounts and reports that the accounts give a "True & Fair" View. An audit is required by larger charities and the testing carried out are more demanding and ultimately more expensive.
An audit may also be required if set out in the governing document of an organisation or if a funder specifically requests one as part of the funding agreement.

6. What are management accounts?
These are accounts produced by the organisation throughout the year to provide information about the performance and financial position of the organisation.
These differ from financial accounts in that they do not have a set format and you can decide on a format for the management accounts which are best for your organisation.
The management accounts will compare the actual results over the period to the budgeted position; they may also show the forecasted year end position too.

Financial Management

7. What is a budget?
A budget is a financial plan of how an organisation expects to receive and spend its money. The budget can be produced for the whole organisation or separate budgets can prepared for separate activities/projects.

8. What is a cash flow forecast?
Whereas a budget shows all the income and expenditure for a whole year (or project) it does not take into account the timing of the cash flows.
A cash flow forecast shows the expected timing of the cash inflows and outflows showing the expected cash balance for each month, thus providing a monthly breakdown of the budget.
The cash flow forecast is used to help to ensure that the organisation does not run out of cash.

9. What is full cost recovery?
Full Cost Recovery is a toll used to calculate and allocate all costs to a specific activity or project.
There are a number of different overhead costs that an organisation incurs (e.g. rent, heat & light, telephone charges, etc.) which are not directly incurred as part of an activity but still contribute to the cost of delivering the activity.

Cash Management

10. How do I record petty cash?
Cash should only be used for small value items generally below £20. When cash has been withdrawn from the bank you need to maintain a petty cash book to record how that cash has been spent.
All cash expensed should be authorised by completing a claim form and then signed by a dual signatory. Petty cash is at a higher risk of misuse therefore you need to have stronger controls in place.
These claims should be recorded in the petty cash book and a running total of cash in hand should be calculated. You can then check this to the actual amount of cash in the petty cash tin.

11. What is a bank reconciliation?
A bank reconciliation is process of checking all items of income and expenditure you expected to happen have been processed through the bank account.
By matching the transactions recorded in the cash book with the items listed on the bank statement you can identify any items which have not been processed, transactions omitted from the cashbook or incorrect amounts that have been recorded.
It is recommended you carry out a bank reconciliation every time you receive a bank statement.

Organisational Structures

12. When should we register as a charity?
If you are a voluntary managed organisation with wholly charitable objects which are for public benefit you are a charity regardless of if you are registered with the Charity Commission or not.
If you have income over £5,000 you must register as a charity with the Charity Commission.

13. What is the benefit of becoming a company?
By being a company you have limited liability that it the people who are responsible for the organisation are not personally responsible for any debts the company has.
As a result of becoming a company you are required to submit annual accrual accounts and returns to Companies House.

14. What is our new companies accounting reference date?
This is the last date in the month that you register as a company. You are required to submit accounts to Companies House for the accounting period 12 months after the company was registered.
For example a company was registered on 19th May 2011, the first set of accounts must be made up to 31st May 2012.
You can change you accounting year end by informing Companies House.

15. What is a Social Enterprise?
A social enterprise is a business which operates for the benefit of the community. It is important to note that a social enterprise is not a legal structure in its own right, a social enterprise could form one of many legal structures which include:
• A company (charitable or non-charitable)
• A Co-operative
• Community Benefit Societies
• A Community Interest Company

Taxation

16. Do I need to pay tax?
All organisations profits are subject to Corporation Tax, some charitable organisations can claim charitable exemption from HMRC by completing a ChA1 form.

17. Do I need to register for VAT?
You must register for VAT if you have taxable inflows (i.e. sales) in excess of £73,000 in a 12 month period.
You may opt to register for VAT if you pay more VAT than you collect, however this is very rare for charities and should be carefully considered.