Getting to grips with fund accounting terminology might seem daunting, particularly if you have not had any accountancy training. Or, perhaps you are familiar with business accounting terminology, but new to fund accounting. We have created this glossary of key fund accounting terms to help:
- Accountant – An accountant is a professional who performs accounting functions such as recording transactions and preparing financial statements. Many small and medium-sized churches and charities employ a bookkeeper rather than an accountant to manage their finances. It’s important that the accountant or bookkeeper responsible for creating charity accounts is familiar with the principles of fund accounting and the Charities SORP.
- Accounting – The process of financial record keeping and the creation of financial accounts is called accounting. Fund accounting is a concept unique to charities. It is important that charities understand and follow the principles of fund accounting when creating accounts.
- Accounting Basis – The accounting method a charity uses to create accounts. Charities with an annual income below £250,000 are often able to prepare accounts on a receipts and payments basis (unless they are a charitable company). Receipts and payments accounts are a simple form of accounting. Charities with an annual income over £250,000, or that are charitable companies, need to prepare accounts on an accruals basis. More information can be found here.
- Accounting Period – The time period in which financial statements and reports are prepared. This is typically both monthly and annually, but it might also be quarterly.
- Accounting Software – Fund accounting software like ExpensePlus enables churches and charities to easily track and manage their finances and create SORP-compliant accounts. Business accounting packages (such as Xero, Sage or QuickBooks) do not provide the same fund management and fund accounting reports required for creating charity accounts. Nor do they include other features such as donor management, Gift Aid management, and donation reports that churches and charities typically need.
- Accounts – Financial statements prepared at the end of an accounting period (see ‘Financial Statements’).
- Accounts Payable – Money owed by the charity that needs to be paid to suppliers, individuals or other organisations for goods or services. Known as ‘AP’ for short, and also known as ‘trade creditors’ or ‘trade payables’. For example, PAYE owed to HMRC that relates to one accounting period but that isn’t paid to HMRC until a subsequent accounting period.
- Accounts Receivable – Money owed to the charity. Known as ‘AR’ for short, and also known as ‘trade debtors’. For example, Gift Aid due in from HMRC that relates to one accounting period, but isn’t received from HMRC until the subsequent account period.
- Accrual – An amount of money that is either due in / due out but has not yet been received / paid. Accruals enable charities to track what money they are owed (Accounts Receivable) and what they owe (Accounts Payable). This helps provide an accurate picture of the financial position of the charity.
- Accruals-Based Accounts – Charities with an annual income over £250,000, or that are charitable companies, need to prepare accruals-based accounts. In accruals-based accounting, income and expenditure is accounted for based on the accounting period it relates to, rather than the date money is received in or paid out. More information can be found here.
- Assets – Everything the charity owns that helps it to operate including property, money, land, vehicles and equipment.
- Audit – An external examination of the financial statements of a charity. An audit is an expression of opinion that the accounts created represent a true and fair reflection of the charity’s finances. An audit must be carried out by someone qualified and eligible to act as an auditor. For charities whose annual income is under £1 million, typically only an independent examination (rather than a full audit) is required.
- Bad Debt – The writing off of unpaid invoices, after efforts have been made to chase the overdue payment, but where it is now deemed unlikely to be received.
- Balance Sheet – Also known as the ‘statement of financial position’. This report provides a “snapshot” of the charity’s financial position at a particular point in time. It is one of the key financial statements and it forms part of a charity’s end-of-year accounts. The financial statement shows a summary of the different types of assets (items the charity owns that can provide future economic benefit). It also shows the liabilities (what the charity owes to other parties), and the breakdown between restricted and unrestricted funds.
- Bookkeeping – The activity of keeping financial records, through which financial accounts and reports get created. For most charities, accounts are typically created using fund accounting software such as ExpensePlus, by either a bookkeeper or a treasurer.
- Bookkeeper – A person whose job it is to maintain financial records and create financial accounts. There are major differences between business accounting and charity accounting. So if your charity employs a bookkeeper, they should have a good understanding of the principles of charity accounting or receive training.
- Budget – The financial plan that estimates the income of a charity for the coming financial year, and details how money will be spent.
- Capital – The money belonging to the charity to enable it to acquire assets and sustain its operations.
- Cash – The most liquid asset of a charity, which is important in enabling the charity to be able to pay expenses and invoices. The term cash typically includes money in the bank as well as physical cash. A charity needs to hold reserves of cash for a number of reasons (see ‘reserves’).
- Cash Accounting – A simple form of accounting, also known as receipts and payments. Receipts and payments accounting is typically used by charities that are not charitable companies, where the charity’s total annual income is below £250,000. More information can be found here.
- Cash Flow Forecast – The planning of a charity’s future cash requirements. It involves predicting how much money will come in and out of the charity in future financial periods. It also predicts the cash position at the end of each period.
- Cash Flow Projections – Statements of cash expected to come in and out of the charity over a particular period.
- Cash Flow Statement – A financial report that shows the total amount of money a charity receives and spends on a regular basis.
- Charitable Incorporated Organisation (CIO) – The majority of new charities formed are registered as incorporated charities. Incorporation provides the protection of limited liability for the charity trustees. Charities registered as CIOs gain all of the benefits of incorporation, without the need to register and report to Companies House (in addition to the Charity Commission). Other charity types include Charitable Companies (commonly used prior to the option of registering as a CIO), Charitable Trusts, and Unincorporated Charity Associations.
- Charity Commission – The Charity Commission for England and Wales is a non-ministerial department of government. It regulates registered charities in England and Wales and maintains the Central Register of Charities. Charities are required to register if their income is above £5,000. Separate regulators exist for charities in Scotland and in Northern Ireland.
- Charity Commission for Northern Ireland – The independent regulator of charities in Northern Ireland. It regulates charities ensuring they meet their legal requirements. It works with charity trustees to put things right if they go wrong, It also helps charities to develop, enabling them to meet modern expectations and obligations.
- Charity Accounting – A form of accounting unique to charities. A charity must follow the principles of fund accounting when creating its financial accounts. More information about charity accounting can be found here.
- Chart Of Accounts – A list of all the accounts used in a charity’s general ledger, into which financial transactions are recorded. These include income, expenditure, asset, liability and equity accounts.
- Creditor – A company, individual, or organisation to whom your charity owes money.
- Closing Balance – The debit or credit balance of a ledger account at the end of an accounting period. This closing balance of an account in one period becomes the opening balance for the next accounting period.
- Contra – When an entry is made in a ledger account to cancel out or reduce an earlier entry. For example, if a purchase for £100 is recorded to an expenditure account, but later the item is refunded, by recording the refund to the same expenditure category this nets off against the original expenditure value. This ensures that the charity’s accounts provide an accurate picture of income and expenditure.
- Corporation Tax – Tax levied on a company’s profits, which is typically not applicable to most charities.
- Credit – An entry that increases a liability, revenue or equity account – or it decreases an asset or expense account. Thus, a credit indicates money leaving an account.
- Credit Note – A summary document issued when a customer is reimbursed either partially or in full. This could be due to a mistake on the invoice, because the customer has received inadequate service, or due to the cancellation of an invoice for some other reason.
- Current Asset – An asset that is either cash or is expected to be converted into cash (generally within 12 months).
- Current Liability – A liability is a debt that is expected to be settled (generally within 12 months).
- Debtor – A business, individual or organisation that owes money to your charity.
- Debit – Entries in the debit column of a ledger account representing increases in assets or expenses, or decreases in liabilities or income. Thus, a debit indicates money arriving into an account.
- Deferral – An amount of money that has been received / paid in advance of when it is due. The use of deferrals enables charities to track money that has been paid in advance (Prepayment) or received in advance (Deferred Income). This helps provide an accurate picture of the financial position of the charity.
- Deferred Income – Money received in advance, which relates to a later account period. For example, ticket income for an event your charity is organising, but that is received in an accounting period prior to the accounting period of when the event is taking place.
- Depreciation – Reduction in the value of a fixed asset each financial year, by the amount set out within the charity’s depreciation policy, until the value of an asset becomes zero. For example, a laptop purchased for £2,000 which is depreciated over 4 years, will depreciate in value by £500 each financial year.
- Depreciation Period – The period of the expected useful life of an asset, as set out in the charity’s depreciation policy, typically by asset type.
- Designated Fund – This fund type is used when the trustees of a charity decide to earmark / designate / set aside funds for a particular purpose. For example, for future building development. More information about fund accounting can be found here.
- Donations – This term typically includes gifts, benefactions, bequests, legacies and grants. Donations are typically given in the form of money. They can also be given as gifts in kind (such as supplies, equipment, materials, services or property). In addition to financial reports, charities often use donation reports to track donor income and donation trends. In the UK, donations from individuals can be eligible for Gift Aid or GASDS, which provides charities with additional income. So, it is important to be able to differentiate donation income from other types of income. Fund accounting packages like ExpensePlus provide this functionality.
- Double Entry Accounting – Double-entry bookkeeping is an accounting system used where every transaction is recorded in at least two accounts: a debit to one account and a credit to another. For example, when a charity pays someone expenses of £100, the cash account is debited (reducing the amount of money in the cash account by £100), and the expense account is credited (increasing expenditure by £100).
- Endowment Fund – This is a fund type used where an investment is held for the benefit of the charity with the objective of generating income for the charity. Specific conditions may also be attached, for example, whether the income generated is restricted or unrestricted. More information about fund accounting can be found here.
- Expenditure – These are costs that are incurred for the purpose of keeping the charity running and enabling it to achieve its charitable aims and objectives. These do not include purchases of fixed assets.
- ExpensePlus – A brilliant cloud-based fund accounting package designed specifically for churches and charities. ExpensePlus provides a simple and effective way for charities to manage expenses, create accounts, send invoices, claim Gift Aid and much more. ExpensePlus enables teams to work remotely and provides staff with accurate, up-to-date, drillable financial reports. It is highly rated and used by hundreds of churches and charities. More information can be found here.
- Fixed Assets – A long-term tangible piece of property or equipment that a charity owns and uses in its operations, such as IT equipment, vehicles, land or buildings. Fixed assets form part of what a charity owns and they are included on a charity’s balance sheet.
- Financial Statements – Formal reports documenting a charity’s financial activities and financial position often referred to as ‘the accounts’. Charity accounts created on an accruals basis must be SORP compliant. In England and Wales, where the annual income of a charity is over £25,000, the accounts must be independently examined (a full audit is required for larger charities). Accounts must then be submitted to the Charities Commission no later than 10 months after the end of the charity’s financial year end to which they relate. In the UK, charities with an annual income below £250,000 are often able to prepare simplified Receipts & Payments accounts.
- Financial Year – An accounting period of a charity, which is typically 12 months. Charities are able to change their financial year end date where certain conditions are met. Their current financial year must not become less than 6 months or more than 18 months. Other rules do apply and these are different for charities that are also companies. More information can be found here.
- Forecast – Estimates of future financial performance and financial position of a charity based on stated assumptions.
- Fund – A pot of money or assets that has been set aside for a specific purpose. When income is received, it must be allocated to a fund based on the purpose for which it was given. Similarly, expenditure must also be allocated to a fund. This makes it possible to track how much money given for a specific purpose remains in a fund at any point in time which is the principle of fund accounting. A charity can have just one fund but typically, will have several different funds. There are several different types of funds that fall under one of two headings: ‘Unrestricted’ and ‘Restricted’. More information about fund accounting can be found here.
- Fund Accounting – A type of accounting used by charities, the principles of which must be followed when creating financial accounts. These principles make it possible to ensure that money is spent on (or earmarked for) the specific purpose for which it was given. Fund accounting is very different from business accounting. More information can be found here.
- GASDS – This stands for ‘Gift Aid Small Donations Scheme’. The scheme enables charities to claim a top-up payment equivalent to Gift Aid on small cash and contactless donations without the need for a donor to complete a Gift Aid declaration or any paperwork. GASDS is paid at the same percentage as Gift Aid (25% of the donation amount). However, there are limits on the amount of GASDS that can be claimed and when GASDS can be claimed. More information can be found here.
- Gift Aid – A UK government scheme that enables charities to reclaim an extra 25% in tax on every eligible donation made by UK taxpayers. For example, if a donor gives £100, the charity will be able to claim an additional £25 from the government where the donor has completed a valid Gift Aid declaration. Software like ExpensePlus enables charities and churches to submit Gift Aid directly to HMRC. More information about Gift Aid can be found here.
- Gifts In Kind – These are gifts or donations that come in a variety of forms including goods, property, and services. Under the Generally Accepted Accounting Principles (GAAP), ‘gifts in kind’ should be reported within a charity’s financial accounts. For example, if a charity is able to use a £10,000 per month premises rent-free, in their end-of-year accounts the charity would show this gift in kind by including £120,000 of income (to represent the donation that is being given over the 12 months), and £120,000 of expenditure (to represent the amount that the charity would have paid had the building not been rent free).
- Governing Document – A governing document (or constitution) is the document (or set of documents) that states a charity’s aim, objectives and purposes. It usually also includes details of other matters, such as the management and control of the charity, such as membership and the appointment of trustees.
- Grants – These often form part of a charity’s income. Grants are classed as either ‘unrestricted’ or ‘restricted’. Restricted grants can only be lawfully spent on the specific charitable purpose for which they were given. Unrestricted grants can be used by the charity however they choose as long as this remains within their charity’s objectives.
- Gross – This means ‘before making deductions’. For example, if a donor gives a £20 online donation, but a 50p processing fee means the charity only receives £19.50, the gross donation amount (before deductions) would be £20.
- HMRC – The commonly used abbreviation for ‘His Majesty’s Revenue and Customs’. HMRC is a UK Government department responsible for the collection of taxes (for example PAYE), the payment of state support (such as grants charities might receive), and the administration of other regulatory regimes (such as the national minimum wage and Gift Aid).
- Income – Money received by a charity. Within the SORP guidelines, income is recognised within a charity’s accounts when the conditions of entitlement, probability, and measurement have all been met. This can be complicated, so often charities seek advice from their independent examiner where questions arise.
- Independent Examination – External financial examination that all charities with an income over £25,000 (and all CIOs) are required to have. An independent examination is far less onerous than a full audit. A full audit is required when a charity’s annual income is over £1m. During an independent examination, the independent examiner reviews the accounting records kept by the charity and compares them with the accounts prepared from these records. They then write a report that provides the information legally required. They include an assurance of whether or not anything has been found that needs to be brought to the attention of the readers of the accounts.
- Interim Reports – Financial statements produced before the financial year has ended. See ‘Financial Statements’.
- Investments – Held by a charity with the intention of providing a financial return which can then be used to help the charity deliver its charitable purposes. For example, a building that a charity owns which is rented out and receives rental income, or a portfolio of stocks and shares.
- Invoice – A document from supplier to buyer summarising the goods or services supplied and the price payable.
- Journal – A chronological record of all transactions in the order in which they occur (sometimes known as the ‘book of original entry’ or ‘all transactions report’). Transactions are recorded using the principle of double-entry accounting. Every transaction is recorded in a minimum of two accounts: a debit to one account and a credit to another.
- Key Financial Reports – For most charities the key financial reports are: (1) Income & Expenditure report (which provides an overview of income and expenditure during the financial period), (2) Balance Sheet (which provides an overview of the financial position in terms of assets, liabilities and fund balances at the end of a financial period), and for some charities (3) Cash Flow Statement (which shows how money moves in and out of the charity on a regular basis).
- Key Performance Indicators (KPIs) – A charity’s financial KPIs will typically include: annual income vs. budget, annual expenditure vs. budget, net surplus/deficit, and unrestricted cash reserves (often stated in ‘number of months’ by dividing the amount by the average expenditure per month). Charities often have other KPIs relating to donors such as the number of regular donors v.s. previous period, % of donors eligible for Gift Aid etc.
- Liability – Debts owed by the charity, which can include mortgages and loans, credit card balances, and other money owed (accounts payable). Also, included is money received in advance (deferred income).
- Limited Liability – Most commonly used to describe the limit of liability trustees must contribute to the assets of the charity if the charity were to go into liquidation. Incorporation provides trustees with the protection of limited liability (which is why many charities are either CIOs or charitable companies).
- Liquidity – The extent to which a charity has access to cash (or items which can readily be exchanged for cash).
- Ledger Account – The location of where financial entries from the general ledger are recorded. Different financial transactions are recorded in different accounts. A report called a ‘chart of accounts’ provides a full list of all the different income, expenditure, asset, liability and equity accounts a charity has.
- Loan – A debt incurred by the charity when a lender (such as a mortgage provider) lends a sum of money to the charity. When a charity borrows money the ‘cash’ line in the assets section of the charity’s balance sheet increases by the amount borrowed. At the same time, the ‘loan’ line in the liabilities section of the balance sheet also increases by the same amount, and thus the overall net assets of the charity remain unchanged.
- Making Tax Digital – A HMRC initiative that replaces manual tax administration with an online, digital system for reporting and paying tax.
- Management Accounts – Financial statements prepared and analysed typically on a monthly or regular basis with the aim of better understanding and managing the performance of the charity. For example, understanding where budgets are being overspent, spotting where donation income has dropped, or tracking where cash reserves are getting too low. See ‘Key Financial Reports’.
- Materiality – The word ‘material’ is used often in the Charities FRS 102 SORP and refers to whether or not an error or omission in a set of charity accounts is significant. Information is considered ‘material’ if its inclusion, exclusion or misstatement would be likely to change a reader’s view about the charity’s financial statements. Normally the larger the item the more material it is likely to be. The value over which something may be considered material will be different for different sizes of charities. For example, £800 may be considered ‘material’ for a small charity, however, it is highly unlikely to be considered as such for a charity with a £1m+ income.
- National Insurance (NI) – Is a tax which is a fundamental component of the welfare state in the UK. For employees paid through PAYE, NI is deducted from the money they get paid automatically (employees NI). In addition, employers also pay NI (employers NI).
- Net – Means ‘after making deductions’. For example, if an event has £500 income and £400 expenditure, the net surplus would be £100.
- Net Assets – The difference between total assets and total liabilities of a charity at a point in time.
- Net Book Value (NBV) – Calculated as the original Fixed Asset Cost minus the accumulated depreciation. For example, if a fixed asset was purchased for £5,000 and depreciated over 5 years (£1,000 per year), at the end of year 3, the NBV = £5,000 – (3 x £1,000) = £2,000.
- OCSR – Stands for Office of the Scottish Charity Regulator. It is a non-ministerial department of the Scottish Government with responsibility for the regulation of all charities in Scotland.
- Opening Balances – Account balances at the start of a charity’s new accounting period which are brought forward from the end of the charity’s previous accounting period. These include asset balances (cash, investments, fixed assets, accounts receivable, prepayments), liability balances (loans, accounts payable, deferred income), as well as fund balances.
- PAYE – ‘Pay As You Earn’ is an automatic deduction of income tax from employees which then gets paid by their employer on their behalf to HMRC.
- Payroll – refers to the system that is used to keep track of employee wages, taxes and other additions and deductions. Churches and charities typically use payroll software to generate salary calculations, to send Real-Time information (RTI) submissions, and to produce payroll documents such as payslips, or they outsource this to a 3rd party to do on their behalf.
- Payslip – A payslip provides an employee with a breakdown of their earnings, any tax paid and any pension contributions. Employers can choose whether they provide employees with printed or electronic payslips.
- Petty Cash – Money held by the charity as physical cash – which is often used to make smaller payments. Petty Cash income and expenditure form part of a charity’s accounts and therefore transactions need to be recorded correctly. With the introduction of card readers, many charities have moved away from using petty cash. Managing petty cash requires additional administration and regular checks for undocumented transactions, and to ensure petty cash is being used appropriately and recorded correctly.
- Prepayment – Money paid in advance, which relates to a later accounting period. For example, insurance costs paid in the current accounting period, but all or part of which relate to a subsequent accounting period. Prepayments can include the payments of deposits, prepaid expenses, as well as other expenditure paid in advance.
- Profit – Charities are not-for-profit organisations that exist to fulfil the charitable purposes set out in their Governing Document. Making money is not in itself a charitable purpose. In charity accounting, the term ‘Net Income’ is used (rather than the term ‘profit’), and rather than producing a ‘profit and loss’ report, charities produce a ‘Statement of Financial Activities’.
- P45 – A document created when an employee leaves employment which shows the tax an employee has paid on their salary in the tax year to date (6 April to 5 April the following year).
- P60 – A document created at the end of each tax year which shows the tax an employee has paid on their salary in the tax year (6 April to 5 April the following year).
- Reconciliation – The process of comparing two sets of records to make sure they correspond with one another and that there are no inconsistencies. Many modern accounting software packages, like ExpensePlus are ‘bank statement driven’ and enable automatic transaction reconciliation, which significantly reduces the opportunity for making manual errors.
- Receipts – As part of keeping proper accounting records, charities need to retain copies of financial documents such as receipts and invoices. Many charities recognise the benefit of keeping these digitally (rather than on paper), and this removes the need for unnecessary printing and storing of paper records, saving time and money, and making it easier to view documents when required.
- Receipts & Payments Accounting Basis – Charities with an annual income below £250,000 are often able to prepare receipts and payments accounts (unless they are charitable companies). Receipts and payments accounts are a simple form of accounting that consists of a summary of all monies received and paid via the bank and in cash by the charity during its financial year, along with a statement of balances. When accounting on a receipts and payments basis, money is accounted for based simply on the date it is received in or paid out of the bank or petty cash account. This type of accounting is sometimes known as cash based accounting. More information can be found here.
- Remittance Advice – A document sent to a supplier or payee (or received from a customer a charity has invoiced), which states that an invoice has been paid. This includes information such as the invoice number, invoice amount and the payment date.
- Reserves – Cash reserves are needed to protect against the risk of a drop in income, to provide working capital in the event that expenditure is needed ahead of income being received, and to provide funding for new initiatives and/or unforeseen costs. General reserves refer to the cash a charity holds that is freely available to spend on any of the charity’s purposes. This excludes things such as endowments, restricted funds and tangible fixed assets.
- Restricted Fund – A fund type used where money has been given for a specific charitable purpose. For example, donations intended for a specific fundraising project, or a grant given for a specific purpose. Restricted monies can only be lawfully spent on the specific charitable purpose for which they were given. For example, if a local authority provides a grant to run a refugee support project, the money can only be used for that purpose. Or, if donors give to a foodbank appeal then similarly the money must be used for that purpose, along with any Gift Aid arising from those donations. More information about fund accounting can be found here.
- Revaluation – Revaluation is the process used to increase or decrease the value of a fixed asset to account for any major changes in its fair market value. Typically charities will only need to do this for land or buildings that they hold. It’s recommended that a revaluation is obtained every 3 years. For example, say a building is currently valued at £400,000 in a charity’s accounts, and, when a valuation is done, it is shown to be worth £500,000, a £100,000 revaluation adjustment would be added to account for this, within the charity’s accounts.
- Revaluation Reserve – A fund type used very specifically to mirror the value of assets held on the balance sheet that have been revalued, such as a building or investment property that has been revalued. More information about fund accounting can be found here.
- SORP – The Charities SORP stands for ‘Statement Of Recommended Practice’ and it’s a substantial document that outlines the guidance, the rules, and the standards of how your charity year-end accounts should be prepared. It goes into detail about how different transactions should be accounted for, whether income, expenditure, or other areas of the balance sheet such as fixed assets, debtors, loans, and creditors. It also outlines how your year-end accounts should look in terms of which financial statements should be included, the notes to those financial statements, and other areas of disclosure that need to be outlined even if they’re not fully directly linked to those financial statements. The accounting recommendations of the SORP do not apply to charities preparing receipts and payments basis. More information can be found here.
- Stakeholders – A general term devised to indicate all those who might have a legitimate interest in receiving financial information about a charity because they have a ‘stake’ in it, such as budget holders, staff, trustees, members, etc. For churches and charities that use ExpensePlus, they can customise which reports and level of detail each stakeholder has access to, removing the need to manually create and send reports each month to different individuals.
- Statement of Financial Activities (SOFA) – The statement of financial activities report summarises the income and expenditure of the charity during a financial year. Income is classified into: ‘Donations & Legacy’, ‘Charitable Activities’, ‘Investments’, ‘Trading Activities’ and ‘Other’. Expenditure is classified into: ‘Charitable Activities’, ‘Raising Fund’, ‘Other Activities’ and ‘Support’. In addition to this high-level pre-defined report, most charities use their own reporting structure for analysing income and expenditure during the financial year. Fund Accounting packages that have been designed for charities should automatically generate the SOFA report for you, leaving you free to structure your income and expenditure categories (accounts) in the way that works best for your church or charity.
- Stock – An inventory of goods held for resale or for use by the charity. Stock is considered a current asset as it is typically sold or consumed within 12 months.
- Tax Year – In the UK, this starts on the 6th of April and ends 5th of April 12 months later. Many charities don’t have the tax year as their charity’s financial year. Commonly charities have their financial year starting on the 1st of January, the 1st of April or the 1st of September. This also means that monthly finance reports run a calendar month, rather than from the 6th of a month to the 5th of the next month.
- Trade Creditors – Persons or businesses who supply goods or services to your charity in the normal course of trade and allow a period of credit before payment must be made.
- Trade Debtors – Persons or businesses who buy goods or services from your charity in the normal course of trade are allowed a period of credit before payment is due.
- Trial Balance – A financial report showing the closing balances of all the accounts in the general ledger at a given point in time. A trial balance is essentially a chart of accounts but with balances. The trial balance report shows balances for each of the different income, expenditure, asset, liability and equity accounts of the charity. It is a useful report to capture and check the financial position of all accounts, and it is a key report used by the person creating a charity’s end-of-year financial accounts and by the person who independently examines or audits the account as well. The total debits and credits at the bottom of this report should always match.
- Trustees – The people who share ultimate responsibility for a charity’s governance and directing how the charity is managed and run.
- Undeposited Cash & Cheques – Income that has been received by cash or cheque that has yet to be paid into the charity’s bank account.
- Unpresented Cheques – Cheques that have been written and accounted for, but not yet been paid out of a charity’s bank account.
- Unrestricted Fund – A fund type used for donations and grants received that can be spent by the charity on anything within its charitable aims and objectives. It is also used for other income such as ticket income for events, or goods and services, etc. which are all unrestricted. More information about fund accounting can be found here.
- VAT – Stands for ‘Value Added Tax’. This tax is added to products and services sold. Whilst charities are not automatically exempt from VAT, the majority of charities do not need to register for VAT. The requirement to register for VAT is based on VAT-able sales, not on a charity’s total income.
- Working Capital – Charities need working capital to fund day-to-day operational expenses and short-term money due. It is needed for a charity to keep operating normally. Working capital is calculated by taking the current assets minus the current liabilities. Put another way, it’s the cash a charity holds (plus assets that can easily be converted to cash, less short-term liabilities the charity already has). However, how much of this amount is restricted or unrestricted also typically needs to be factored in.
- Year End – The end date of a financial year. At year-end, charities are required to create Financial Statements. See ‘Financial Statements’ for more details.
- Year End Accounts – Financial statements prepared at the end of a charity’s accounting period. See ‘Financial Statements’ for more details.
- Year to Date – The period between the first day of the financial year and the current date.
- Zero Based Budgeting – A method of budgeting in which all expenses must be justified and approved for each new accounting period.