There are two basic ways of preparing accounts:
- accruals accounting which shows income earned and expenditure incurred over a period. In the case of registered charities this provides a Statement of Financial Activities (SOFA). All charitable companies, and non-company charities with a gross annual income over £100,000 need to use this approach.
- receipts and payments, which broadly shows transactions only when money has changed hands.
Accrual accounts should include a balance sheet and notes to the accounts, whereas receipts and payments accounts should include a statement of assets and liabilities.
Accounts are often professionally audited or independently examined and in some cases are presented to an organisation’s Annual General Meeting. Registered charities may have to send their annual report and accounts to the Charity Commission every year. Companies have to submit an annual return to Companies House.
Organisations also may wish to produce monthly or quarterly management accounts for internal use; these would not need to be independently examined.
Although accounts are normally drawn up every year, the sources of the information to prepare the accounts are the organisation’s books and records. There are many different ways of keeping books and records and they can also be kept either using a paper based system or be computerised.
There are examples of some different systems in the “Resources and References” section of this guide, but organisations are advised to seek professional guidance in choosing which system to adopt. Whichever system is chosen, it needs to be accurate, safe, secure and up to date.
