How do I handle income that isn't part of our accounts?
This article covers the question of how to handle income and expenditure which shouldn't be included in your organisation's statutory accounts.
Note: If you are 'collecting and stewarding' income that is not intended for your organisation, and you are not wanting this to form part of your accounts, we'd highly recommend that you contact your independent examiner to check that this is the correct way to account for this income before proceeding.
If your organisation is collecting money on behalf of an individual or another organisation, then this money may not form part of your organisation's income and expenditure.
An example of this might be CofE Fees or flowers and organist fees for weddings or funerals. This money typically passes through your church's bank account but doesn't form part of your organisation's income and expenditure.
Top tip: if your charity is accepting and passing on donations (also called 'conduit funding'), see this blog article to learn more about what to consider when doing this: Can a charity accept and pass on donations?
How to handle income and expenditure that does not form part of your accounts
Incoming amount
This needs to be recorded as income:
- If you wish to create a customer invoice, then you can do this within the invoicing module. When the income is received this is then allocated to the invoice as with any invoice income - click here to find out more. This option is typically used by churches for weddings and funerals.
- Alternatively, you don't need to issue an invoice. Once the incoming bank transaction is uploaded, you can simply reconcile it as 'Other Income' within the match transactions screen.
Note: if the money is received via cash or cheque it can also be recorded as income via the bank deposit screen.
Important: money that does not form part of your accounts should not be recorded as a 'Named Donation' (or as GASDS Donation).
Outgoing amount
This needs to be recorded as 'Income Repayment' (NOT as expenditure).
Important: don't process the outgoing payment via the usual expenses and payments process. Instead, simply make the payment without recording any entry within ExpensePlus upfront, then follow the instructions below to reconcile this transaction.
When the outgoing amount that you don't wish to form part of your organisation's accounts is uploaded as part of your bank transactions and appears on the left-hand table of the match transactions screen, the transaction should be recorded as follows:
- select the transaction on the left and table
- click the + button that appears next to the transaction
- in the popup that appears, select the transaction type as 'Income Repayment'
- enter the other details needed, being sure to select the same fund/category as the corresponding income.
Note: if you want to split the income repayment against multiple funds/categories, then this can't currently be done directly from within the bank matching screen. Instead, you will need to reconcile the income repayment against a fund/category, then within the 'view statement; screen, click on the income repayment to edit and split this.
Recording the outgoing amount as 'Income Repayment' will create a negative income. This will cancel out the original income recorded, and the net income will be zero (the net expenditure will also be zero). Therefore this money will not affect your income and expenditure totals in your end-of-year accounts.
Note: there are only a small number of scenarios where 'netting off' income as described above is the correct way to account for it. We therefore highly recommend that you contact your independent examiner if you are not sure.
Year End
At year-end, if a balance is held, then:
- If you create accounts on an accruals basis, you can account for this by adding a manual 'deferred income' adjustment for the amount of money held. This will ensure that there isn't any income showing within your financial reports, and the amount held by the charity that does not belong to the charity will show as a liability on the balance sheet.
- If you create accounts on a receipts and payments basis, then you should check with your independent examiner whether to include the amount held on your assets & liabilities statement in your accounts.
To better understand the Bank Reconciliation module, please view the module overview video here.