Glossary of Accountancy Terms
Accruals- A provision for a liability which has occurred but not been paid for example at the end of the year you hire a venue in December close off your accounts in December, but the supplier does not issue the bill until January, this is known as an accrued expense. In accounting terms it follows the, ’matching concept.’
Income & Expenditure also Receipt & Payments -This is a simplified set of accounts and applies to small charities who are unincorporated and have an income below £100,000. Its disadvantage is that it does not always reflect a ‘true & fair view’
Cash book - A record of income & expenditure produced on a daily basis and closed off each month. You need to ensure that the closing balance of the previous month is your opening balance of the next month.
Petty Cash - Small cash held deposits used for example postage, refreshments, stationery. A cash book still needs to be used and the opening & closing balances still apply.
Receipt references need to be kept for all receipts and an authorisation procedure put into place
- Imprest System = Having an agreed Float and topping up to that amount at the end of each month for example the float is £100 you spend £50 therefore at the end of the month you top up £50 to ensure that your opening balance for the next month is £100.
Bank Reconciliation - A monthly exercise whereby you match your bank cash book with your bank statements, this involves ticking from the bank statement to the cashbook. Differences can be cheques which have been issued but not cashed, income paid into the bank but awaiting clearance,direct debits or bank charges/interest not entered onto the cash book.
Prepayments - Services paid for in advance, e.g insurance, council tax water, this requires an adjustment in the accounts, follows the matching concept.
Restricted Funds - These funds are “ring-fenced” and can only be spent as specified by the funder, and by the agreed budget. If you want to spend funds differently you need to get the express permission of the funder.
It is important when receiving a grant to read all the terms & conditions.
Unrestricted Funds -These are for the general purposes of the charity, but still must comply to the objects of the charity. Examples could be donations.
SORP 2005 - Standard of accounting practice imposed by the Charity Commission. It applies in full to charities whose income Exceeds £250,000
Charity Commission - the governing body of charities, holds very good publication material and also offers an advice line.
Fund /Project Accounting - When you have more than one grant or funder it is important to be able to analyse your funds accordingly.
Financial Controls Policy - You will need to build up a set of procedures and follow recommended good practice.
Bank Mandate - The signatories able to write cheques and open close and transfer funds and the amount of financial authority which they have.
Budget - An approved plan agreed at the beginning of the financial year agreedby the trustees base on known income & often using previous years as a guide.
Variance - Difference between actual & budget. An adverse variance is negative and a favourable variance is positive.
Cash flow - A prediction over forthcoming months of income & expenditure expected and an activity plan to match it. It ensures that you do not go overdrawn & indicates when your funding may run out.
Forecast - Similar to a cashflow but a prediction of future activity.
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