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Furlough accounting entries

How do you post furlough?

Didn't find your answer?

Bit bored. Can't 'quickly' find any guidance on this one.

How is furlough treated in accounts? I use Liberty for our small charity accounts and we got furlough receipt yesterday (HURRAH!).

Initially Liberty said it was credit bank, then debit debtors for the pay. When receipt arrives it's debit bank and credit debtors.

Now they say that's wrong and HMRC have 'clarified' it is credit bank, debit P&L for the pay, then debit bank and credit other income (or grant received) for the receipt.

Any thoughts? I set it all up as the first. Now being told this is wrong and its income and expense (rather than no expense at all).

I'm a little unsure about the first treatment, as a small charity with little income anyway, the furlough income is going to distort our total income quite a bit. My personal view is that usual donations might amount to only £30k in the year, and the furlough receipts could be a further £9k on top of that.
Heck, it could be the difference between needing an IER and NOT needing an IER.

Replies (21)

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By susieq
06th May 2020 10:12

Have never used Liberty but surely it's simply debit bank and credit P&L (staff costs)with the furlough grant (so that net cost of wages is shown in P&L ) . Shouldn't be anything to do with the wage control because the business should have paid the wages as normal. Seems to be complicating something that is very simple!

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Replying to susieq:
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By jon dickinson
06th May 2020 10:16

100% agree-Simply treat like a grant and credit the relevant wage cost in the P&L.

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By ireallyshouldknowthisbut
06th May 2020 10:40

**Poor advice up above**

On receipt of grant its, Cr Grants (or other income or something) Dr bank.

on wages its your normal double entry, but broadly Dr Wages, Cr bank.

Thats it. You do not offset grants against cost codes unless you ride a horse and have a big hat and don't know what the flip you are doing.

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Replying to ireallyshouldknowthisbut:
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By susieq
06th May 2020 10:49

Sorry- replied in hurry without thinking about the grant rules. Was simply thinking about Dr bank, Cr P&L. Hangs head in shame :(

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Replying to ireallyshouldknowthisbut:
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By jon dickinson
06th May 2020 13:20

Poor advice? I assume you are adopting the American double entry book-keeping system. I was always taught that grant money received was credited against the relevant cost in the P&L not debited as you are advising???

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Replying to jon dickinson:
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By Bobbo
06th May 2020 15:22

No idea what the Americans do, but I think you better get some new accounting textbooks.

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By jon dickinson
06th May 2020 15:35

Don't think so:-) An American Book-keeper would have debited the wages in the P&L like you (in your other alias) advised and credited the bank. Over here we credit grants in the P&L and debit the bank.-Look up Frank Wood if you are still confused.

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Replying to jon dickinson:
By ireallyshouldknowthisbut
06th May 2020 15:35

@Jon its basic UK GAAP.

No set off.

Probably first topic on the first week of your accounting principles course.

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Replying to ireallyshouldknowthisbut:
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By jon dickinson
06th May 2020 15:37

I was referring to the basic double entry book-keeping advice he was giving which was the wrong way round when he was slagging me off? I have referred him to Frank Wood:-)

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By Duggimon
06th May 2020 10:25

The wages you pay to staff are wages, and are recorded as such. The grant you receive is income, and is recorded as such. Don't get confused trying to treat it all as one big transaction, it is not.

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By johnt27
06th May 2020 11:03

As others have said this is grant income to be recorded as such and as you have pointed out if claims are big enough this could tip your charity over the limits for needing an IE.

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By GW
06th May 2020 11:16

I agree about not offsetting income and expenses.

The limit for needing an independant examiniation is income of £25,000 so If usual donations are about £30K you need one anyway

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By Mr_awol
06th May 2020 12:57

Be careful if you are a very small charity eligible for free banking.

The income being banked may or may not trigger your charity exceeding your bank's thresholds. This may or may not be negotiable with the bank as to whether they can reinstate free banking.

I had this was a charity who moved money from the restricted fund savings/reserve account into the current account to pay it out on a large repair. The bank (Lloyds) included this as 'income' on the current account and started charging bank charges because 'income' had exceeded their (£50k or £75k I forget) limit for a community account and free banking.

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By tom123
06th May 2020 13:41

There is another argument here - but maybe not strictly relevant to charities.

We have created a specific nominal code to show the receipt, (and in the year end accounts I don't doubt it will be shown as 'other income' -) but for internal reporting purposes I am not including it as part of my sales - rather I am grouping this nominal code with my wage costs for the month to show a lower wage cost in the management accounts pack.

I don't want to 'inflate' my sales reporting at this time.

So, for me, I am happy to have it grouped within salary costs.

I accept that most of Aweb is usually concerned about statutory reporting.

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Hallerud at Easter
By DJKL
06th May 2020 14:01

Agreed.

I use ledger structures to inform me of what I want to see in my accounts and then later fit these into the statutory layout rather than letting statutory accounts layouts dictate data available to me.

The prime examples for us are say pref dividends and pref shares which are disclosed in year end accounts under finance costs and as liabilities but during the year are within my management accounts as dividends and equity.

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Replying to tom123:
By ireallyshouldknowthisbut
06th May 2020 15:41

@tom, I think for management accounts its a question of the owners of the business understanding the business, and a net off might make sense. You call.

For stat accounts, its about external people understanding the figures, so they need to be all prepared the same way.

It ought not be in turnover however in either case, its always going to be an "other income" for stat accounts and possibly "exceptional income"

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Replying to ireallyshouldknowthisbut:
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By jon dickinson
06th May 2020 16:02

Agree 100%

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By DJsy
11th Sep 2020 09:02

Sorry to hop on an oldish thread here but I'm not sure I agree with some of the suggestions.

I don't think this is "other income". It's revenue and you should split it out in a supporting note as grants (within revenue) if it's material. See 23.30 extract from FRS102 below.

Also check the allowed P&L formats for both FRS102 and the Section 1A small co rules (1AB.3). Revenue is the top line of the P&L, not buried somewhere near the bottom in an "other income" line. You might choose to override this but you'd need a strong argument for going against the standards. Government grants are nothing new.

Thinking about the transaction on its own - it has arisen because your revenue has declined, and the grant has therefore been made to replace lost revenue, not to pay your staff. The condition of the grant is just that you furlough the staff.

Extract from 23.30:

(b) the amount of each category of revenue recognised during the period, showing
separately, at a minimum, revenue arising from:
(i) the sale of goods;
(ii) the rendering of services;
(iii) interest;
(iv) royalties;
(v) dividends;
(vi) commissions;
(vii) grants; and
(viii) any other significant types of revenue.

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By johnt27
11th Sep 2020 09:35

It's not turnover as the charity has delivered no service in receipt of the grant...

Furlough monies are compensation for retaining staff in employment rather than getting rid. As such it's an incentive and falls under other income.

If the charity or any other business was receiving money in the form of grant for delivery of service (more typical in charity world than commercial) then I would agree it forms part of top line income.

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Replying to johnt27:
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By DJsy
11th Sep 2020 12:14

I agree not turnover. It is revenue though.

Definition of turnover: "The amounts derived from the provision of goods and services after deduction of:
(a) trade discounts;
(b) value added tax; and
(c) any other taxes based on the amounts so derived."

Definition of revenue: "The gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions
from equity participants."

Receiving a grant is an ordinary activity. Definition:
"Ordinary activities are any activities which are undertaken by a reporting entity as part of its business and such related activities in which the reporting entity engages in furtherance of, incidental to, or arising from, these activities. Ordinary activities include any effects on the reporting entity of any event in the various environments in which it operates, including the political, regulatory, economic and geographical environments, irrespective of the frequency or unusual nature of the events."

*EDIT* Therefore it should be accounted for as revenue and disclosed appropriately if the impact is material.

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Replying to DJsy:
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By DJsy
11th Sep 2020 12:30

And if we're talking Charities SORP FRS102, it's also definitely not Other Income there either. It would be Income from donations and legacies, which includes "grants of a general nature provided by government and charitable foundations which are not conditional on delivering certain levels or volumes of a service or supply of charitable goods"

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