Advice on showing income which may be received outside of financial year

IsThisOneFree

Last year I took over as Treasurer of a local community group. The previous treasurer didn't keep any yearly accounts, but I'd like to start - just to present something simple to the committee very year to show our comings and goings etc.

I've decided to run our Financial Year from Nov 1st - Oct 31st, as we generally meet in November and start our fundraising then, after we've received our maintenance bills for the summer.

Other than voluntary donations, our main incoming is a €1k local authority grant that we receive annually.

I don't want very complicated accounts - all the comittee need to see is
a) Voluntary Donations
b) Grant receipt
c) Our costs
d) What are we worth on Nov 1st

Be it right or wrong, I've settled on the following format for our accounts (but I'm open to correction)


Income (broken down by each category)
Expenditure (maintenance, fees etc)

Net Income

Allocation of Funds (this is the best title I could come up with, I want to show where our Net Income is now ... ie in the bank, petty cash etc)

Current Assets (Petty Cash and Bank Balance)

Value of Fund at Nov 1st

The problem I have is that the local authority don't have a set time for paying the grant. It could be paid any time from Feb - Dec from what I can tell. In 2019 it got paid in March, which is outside of the 2019/2020 financial period (that I'm currently doing accounts for).

So, when I get to "Allocation of Funds", I have the following

Bank Balance at Nov 1st 2019 3,000
Allocation from Net Income 500
Bank Balance at Oct 31st 2020 3,500

The problem is, we don't have 3,500 in the bank ... we have 2,500. The Nov 1st 2019 Bank Balance includes the 1,k grant which is also accounted for in the Net Income.

I don't really want to leave the grant out of the income section, as then there'll be questions on whether we received the grant or not.

And I don't want to run the accounts from Jan - Dec because we usually have donations coming in from Nov - Jan/Feb. And we don't typically meet in Jan, so the accounts would be somewhat useless at that stage.

The way I worked around this was by putting:
Adjusted Bank Balance on Nov 1st 2019 2,000 along with a note explaining that the grant was paid outside of the financial year.

Is this considered acceptable ? Or does anybody have any better suggestions on how I should be doing this ?

Apologies, long post I know. Thanks in advance for anyone who has read this far :-)

November Golf

IsThisOneFree wrote: »

Last year I took over as Treasurer of a local community group. The previous treasurer didn't keep any yearly accounts, but I'd like to start - just to present something simple to the committee very year to show our comings and goings etc.

I've decided to run our Financial Year from Nov 1st - Oct 31st, as we generally meet in November and start our fundraising then, after we've received our maintenance bills for the summer.

Other than voluntary donations, our main incoming is a €1k local authority grant that we receive annually.

I don't want very complicated accounts - all the comittee need to see is
a) Voluntary Donations
b) Grant receipt
c) Our costs
d) What are we worth on Nov 1st

Be it right or wrong, I've settled on the following format for our accounts (but I'm open to correction)


Income (broken down by each category)
Expenditure (maintenance, fees etc)

Net Income

Allocation of Funds (this is the best title I could come up with, I want to show where our Net Income is now ... ie in the bank, petty cash etc)

Current Assets (Petty Cash and Bank Balance)

Value of Fund at Nov 1st

The problem I have is that the local authority don't have a set time for paying the grant. It could be paid any time from Feb - Dec from what I can tell. In 2019 it got paid in March, which is outside of the 2019/2020 financial period (that I'm currently doing accounts for).

So, when I get to "Allocation of Funds", I have the following

Bank Balance at Nov 1st 2019 3,000
Allocation from Net Income 500
Bank Balance at Oct 31st 2020 3,500

The problem is, we don't have 3,500 in the bank ... we have 2,500. The Nov 1st 2019 Bank Balance includes the 1,k grant which is also accounted for in the Net Income.

I don't really want to leave the grant out of the income section, as then there'll be questions on whether we received the grant or not.

And I don't want to run the accounts from Jan - Dec because we usually have donations coming in from Nov - Jan/Feb. And we don't typically meet in Jan, so the accounts would be somewhat useless at that stage.

The way I worked around this was by putting:
Adjusted Bank Balance on Nov 1st 2019 2,000 along with a note explaining that the grant was paid outside of the financial year.

Is this considered acceptable ? Or does anybody have any better suggestions on how I should be doing this ?

Apologies, long post I know. Thanks in advance for anyone who has read this far :-)

I think your having difficulty with your basis of accounting: if your a community group that is not incorporate you should probably be using the cash basis of accounting (rather than the accural concept)

In the cash accounting basis, you record cash income / expenditure when its received/spent (not when it was accured or deferred). In that case, you need to removed the 1k from income as you have not received it. You could include it as a note that a 1k grant was awarded but not received or recorded in accounts at year end 2019/2020.

The cash basis could result in two grants being received in one financial year and no grant received in another year but, unless im mistaken, your doing the accounts as guidance rather than a strict legal obligation so consistence is what is most important.

P.S: Your current financial year would be 1 Nov 2020 - 31 Oct 2021 (i.e. 2020/2021)

cdeb

There's no reason a community group can't use the accruals basis of accounting if the members are ok with it and if it shows a more accurate view of the accounts (in this case, avoiding having no grant in one year and two grants in another year, when the reality is that the grant is annual)

I wouldn't adjust the bank - just show it as a debtor in your Current Assets. In accounting terms, it'd be debit "Grants owing" or similar, and credit "Grant income" That way, it's also clear that the grant hasn't arrived as yet. You can put a note in the accounts noting when the grant was received.

IsThisOneFree

Thanks for the replies

you should probably be using the cash basis of accounting

never heard of cash basis to be honest. When I started out I done some searching on charity accounts (we're not a charity, but that's the closest match I could come up with), which is where I got the I&E method from. I'll do a bit more reading on the cash basis, although I suspect the method I'm using at the moment may result in less questions from the committee in the long run :-)

The cash basis could result in two grants being received in one financial year and no grant received in another year but, unless im mistaken, your doing the accounts as guidance rather than a strict legal obligation so consistence is what is most important

Yup, all of that is correct

just show it as a debtor in your Current Assets

Yea, I did wonder if there might be some way of doing this on the B/S. I hadn't thought of just doing crediting the grant already received. I think that'll work without raising too many questions or having to go changing the bank balance.

Thanks for the replies

cdeb

Cash basis is just recording what's in your bank account.

IsThisOneFree

cdeb wrote: »

Cash basis is just recording what's in your bank account.

Doesn't sound like it would really meet my needs then as it won't show our I&E. Thanks for the replies

November Golf

IsThisOneFree wrote: »

Doesn't sound like it would really meet my needs then as it won't show our I&E. Thanks for the replies

Of course it would,

The cash basis is where payment receipts are recorded during the period in which they are received, and expenses are recorded in the period in which they are actually paid - its sometimes used by sole traders.

Income - Expenses = Surplus / (Deficit)

In cash basis a surplus means you have received more money that you actually spent in the same period. a Deficit means you paid out more than you received.

In accruals basis, a surplus means you earned (received or not) more than you than the expense incurred (paid or not) in the same period. a Deficit means you incurred more expenses than you earned income.

Its up to you which method you use and which will best serve the needs of your group. Accruals basis is more accurate in that it includes a wider source of information however its also more complex.

If your groups transactions are mostly cash (rather than credit), then cash basis may be better.

ari101

Mike Foxtrot wrote: »

Of course it would,

The cash basis is where payment receipts are recorded during the period in which they are received, and expenses are recorded in the period in which they are actually paid - its sometimes used by sole traders.

Income - Expenses = Surplus / (Deficit)

In cash basis a surplus means you have received more money that you actually spent in the same period. a Deficit means you paid out more than you received.

In accruals basis, a surplus means you earned (received or not) more than you than the expense incurred (paid or not) in the same period. a Deficit means you incurred more expenses than you earned income.

Its up to you which method you use and which will best serve the needs of your group. Accruals basis is more accurate in that it includes a wider source of information however its also more complex.

If your groups transactions are mostly cash (rather than credit), then cash basis may be better.

No harm in having two basic policies even if they are not formal accounts, you can include them so people know what is and isn't in the numbers:

Grants are recorded in the period to which they relate once there is certainty criteria is met and they will be received. Any amounts still owing at year end are shown in Grants Receivable [or whatever name makes sense for you].

Other income from donations / fundraising and expenditure are recorded on a cash basis.

Given you are trying to give an honest view of the year, you should probably consider including a note in your report if there are any major financial commitments entered into at 31 Oct, not yet paid, so there are no surprises after the fact for the members.

fishy_fishy

Hey OP,

I presume you have other life duties beyond being treasurer, so I was thinking about your proposed year end date. If you meet in November I would personally set year end as 30 September, that way you have at least a full month to prepare the accounts and the group are free to meet any time in November. Don't make a cross for your back with this! You'll only be kicking yourself if you're stressed out in early November every year.

In terms of accounting basis, I would echo the advice to use the accruals basis - this will give you higher quality information and strip out any timing issues around the grant.

What is your accounting background like? Is this your first dabble into it since e.g junior cert business studies?

thefa

Interesting topic. Became treasurer of a local community group this year and carried on using the Income and Expenditure format from before (which is truly a receipts and payment account) but made categories to make it more visible as to where money was being made and spent. It looks like no I&E you would see on a textbook but gives the members good info.

We have a more regular source of income so the cash basis suits fine once all major creditors are paid by the cut-off and income accounted for in time. I do not think the additional effort, say of prepaying annual ticket income, would add value in my case. A short written report accompanying the I&E can be useful too to give context and note anything material that didn’t make it in. To be honest, if the group has been in the dark on the figures then

IsThisOneFree

Thanks for the replies, sorry it's taken me so long to get back to this

Very good suggestion of ending the financial year on September 30th rather than October, thanks for that.

I've still not read much into Cash Basis yet, but I will. From reading the above, I'm not so sure it'll change the eventual layout either way, but I'll give it a go. I already presented the members with the accounts I had done up over a month ago, they seemed pretty happy as they said it was more than they'd ever received before.

When I do get a chance to read up on Cash Basis, I might post back further and let you know how I got on :-)

As for my background in accountancy, I done it for LC but not touched it since (and have forgotten alot of it by now !). But I've a fairly good head for numbers I think !

ari101

IsThisOneFree wrote: »

Thanks for the replies, sorry it's taken me so long to get back to this

Very good suggestion of ending the financial year on September 30th rather than October, thanks for that.

I've still not read much into Cash Basis yet, but I will. From reading the above, I'm not so sure it'll change the eventual layout either way, but I'll give it a go. I already presented the members with the accounts I had done up over a month ago, they seemed pretty happy as they said it was more than they'd ever received before.

When I do get a chance to read up on Cash Basis, I might post back further and let you know how I got on :-)

As for my background in accountancy, I done it for LC but not touched it since (and have forgotten alot of it by now !). But I've a fairly good head for numbers I think !

Cash basis is just recording the transactions that have been paid / received, so anything through the bank account (or petty cash) and nothing else, what you were already doing except for recording the grant due.

If you have improved things by doing this, that is a great start.

Good luck and Happy New Year.