Share this content
12

How to account for a charity restricted fund

My client, a charity has access to a technology fund with BT. How do I account for this

Didn't find your answer?

As above, my client has access to a technology fund with BT to be used against their BT phone costs.  So up until the point the fund is used up, my client is receiving nil value invoices from BT.  I am thinking that this is referred to as a restricted fund?? and I should create a fund account in the Balance sheet although no monies transfer hands so if the full fund was not used up before the contract end, BT would put it back into their charities pot.  However, this wont happen since the contract is for 29 months and at the 6 month mark they anticipate the fund will have been used up and so my client will start being invoiced by BT.   I also believe I should be recording some phone costs in the P&L with the other side being to erode this fund in the balance sheet.

My question therefore, I am correct with my thinking and also what is the other side of the double entry to create the fund account in the balance sheet since no cash is changing hands?  

Thankyou for any help

 

Replies (12)

Please login or register to join the discussion.

avatar
By WhichTyler
13th Feb 2020 13:18

Cr In kind support
Dr Phone costs
Nothing on the BS as there is no asset, just an agreement to waive charges for a period

Thanks (0)
avatar
By DouglasN
13th Feb 2020 13:23

Presumably on Accruals basis and not Receipts and Payment? Instead of the Restricted Fund being held as cash on the balance sheet, it is held as a debtor.

DR debtor (RF)
CR income (RF)
with the full award

DR expense (RF)
CR debtor (RF)
for each phone bill

Thanks (0)
Replying to DouglasN:
avatar
By WhichTyler
13th Feb 2020 13:35

I tend to disagree, as I am not sure there is a recognisable asset to put on the bs ( you mention cash on the bs, but there is no cash). It is not under the charity's control, in that if they buy phone services from another provider, the asset is worthless.

But it is probably not going to be a huge amount, so I wouldn't get too worked up about it. And check with your auditor or independent examiner, as they are the ones who will have to sign off the treatment

Thanks (0)
Replying to WhichTyler:
avatar
By AnnabelC
13th Feb 2020 14:41

They are in a contract and I would not expect them to terminate it and certainly without penalty. The sum is £7500 so quite a material amount I consider. But yes, its got no cash value either other than its offset against their phone costs.

Thanks (1)
Replying to WhichTyler:
avatar
By DouglasN
13th Feb 2020 16:11

Depends on the exact circumstances and terms, but on the basis that they have been awarded £7,500 then the charity should recognise the full income, hence there is a debtor on the balance sheet.

Thanks (0)
Replying to DouglasN:
avatar
By AnnabelC
13th Feb 2020 18:15

But since there is no cash exchange then what is the other side of the double entry to recognise the debtor? Otherwise it will never clear.
I have spoken to the independent examiner and he is suggesting show the cost in overheads and show a 'negative' overhead to balance it out.

Thanks (0)
Replying to AnnabelC:
avatar
By johnt27
13th Feb 2020 22:28

AnnabelC wrote:

I have spoken to the independent examiner and he is suggesting show the cost in overheads and show a 'negative' overhead to balance it out.

That's definitely wrong and you need to point out to the IE that the SORP expects the recognition of income (not negative overheads) and expenditure in these cases. Suggest you get a new IE that knows what they are doing as this is charity basics so what else are they getting wrong?

As for whether you recognise the full value up front that's difficult to say without seeing the contract terms. If so you'd do as others suggested DR prepayments/debtors CR income and then release the debtor to overheads each month. If not it's DR costs, CR income each month.

Thanks (0)
Replying to WhichTyler:
avatar
By JoF
13th Feb 2020 23:20

Not read this/thought this through fully, brain freeze due to failed boiler, but just off the top of my head.....contingent asset?

Edit...Sorry WT, not sure why I responded to you!!!

Thanks (0)
avatar
By Ranse
13th Feb 2020 14:58

you will need to recognize the income perhaps as a grant and then expense it over time. As this grant covers more than one financial year , you will need to show an entry for it - my take

Dr. Asset - Grant receivable
Cr Income

Every month you will need to write this down
Dr Phone cost
Cr Grant Receivable

Thanks (0)
Replying to Ranse:
avatar
By DouglasN
13th Feb 2020 16:17

Agreed. That's what I said (sort of) .... with the addition that it is a restricted fund.

Thanks (0)
avatar
By AnnabelC
13th Feb 2020 18:15

Thankyou everyone for your contributions.

Thanks (0)
avatar
By [email protected]
19th Feb 2020 12:09

a restricted fund has to be shown seperately on the balance sheet and on the Statement of movement in funds
The income and the expense both to be shown gross
so
DR Restricted Fund (BT...)
CR Grant Income
DR Telecoms costs
CR Restricted Fund (BT...)
you'll need to check the wording of the grant as to whether it is a single grant, to be used as bills come through. or whether it is in stages matching the bills.
The Charities commission has a lot of useful information about how to account for a charity. CC15 and CC8 are worthwhile reading. and from your comments is seems that the independent examiner aught to refresh themselves with CC32

Thanks (0)
Share this content

Related posts