What are Auto-Accruals?
If your accounting basis is set to 'accruals' (typically churches and charities with an annual income of over £250,000), and you have the setting for auto-accruals enabled, then ExpensePlus will automatically accrue for both purchase expenditure and invoice income.
What is an accrual?
An accrual is an amount of money that is either due in / due out but has not yet been received / paid.
The use of accruals helps charities to track what money they are owed (Accounts Receivable) and what they owe (Accounts Payable).
Expenditure Accruals (Accounts Payable)
If purchases are accrued:
- The expenditure will appear in your accounts based on the purchase date (rather than on the payment date);
- A corresponding accounts payable amount will show on the balance sheet to reflect that money is owed by your church or charity;
- This will then automatically be reversed during the bank reconciliation process when the corresponding payment is paid.
Example:
- Bob makes a purchase at Argos on March 28th (which he enters into ExpensePlus on March 30th)
- The transaction is processed via the expense and payments process in ExpensePlus and Bob is paid back on April 5th (and the bank transaction is reconciled on April 10th)
When the purchase is entered (March 30th), the expenditure will show within the accounts. The date of the expenditure will be the March 28th (the purchase date). The accounts payable line on the balance sheet will increase by the purchase amount (to reflect that money is owed).
When the outgoing bank transaction is reconciled (on April 10th), the accounts payable amount will decrease on the balance sheet. This decrease will show on April 5th (the date the payment was made) and will reflect that money is no longer owed.
Top Tip: Once you have completed year-end within ExpensePlus and are ready to use the data to create year-end accounts, it's highly recommended that you lock that financial year. This will prevent the risk of someone submitting a purchase dated in the year you are creating accounts for (which would change all your year-end reports).
Income Accruals (Accounts Receivable)
If invoice income is accrued:
- The income will appear in your accounts based on the invoice date (rather than on the date payment is received);
- A corresponding accounts receivable amount will show on the balance sheet to reflect that money is owed to your church or charity;
- This will then automatically be reversed during the bank reconciliation process when the corresponding payment is received.
Do I need to use auto-accruals?
If your accounting basis is set to 'accruals', then at the end of your financial year you will need to accrue for money that is either due in / due out but has not yet been received / paid.
Whilst there is no requirement to accrue for income and expenditure during a financial year, it is far simpler to have auto-accruals enabled which is why we recommend it.
If you create accruals-based accounts but would prefer to manually add in accruals via the adjustments module, then you do have the option to disable auto-accruals (not typically recommended).
Important: If you are VAT registered, you will need auto-accruals set to 'enabled'.
What are the benefits of using auto-accruals?
There are several advantages of using auto-accruals:
- You don't need to spend time manually adding accruals during your financial year (e.g. when large monthly invoices get out of sync and two months' worth get paid in the same month).
- You don't need to spend time manually adding accruals at year-end in order to create accounts (auto-accruals are ideal for larger churches and charities).
- You avoid skewing your management reports e.g. if you create accounts on a cash basis during the year and then accrue only at year-end, this will result in monthly payments not appearing in the first month of your financial year and appearing twice in the last month of the financial year.
How do I enable / disable auto-accruals?
To enable or disable auto-accruals, go to 'Settings' > 'System Settings' then click the edit button to the right of the top section. Changing this setting won't affect transactions that have already been entered. It will only affect whether future transactions entered are auto-accrued or not.
Note: this option will only show if your accounting basis is set to accruals. You shouldn't change your accounting basis unless you intend to change how you create year-end accounts - which we recommend you discuss with your independent examiner before deciding.
Frequently Asked Questions (FAQs)
Can I use auto-accruals if my accounting basis isn't accruals?
No. The use of auto-accruals (and indeed the use of accruals) is only for churches and charities that create accounts on an accruals basis.
Will enabling / disabling auto-accruals affect previously entered transactions?
Changing this setting only determines whether or not transactions going forward are auto-accrued.
It would be wrong for a setting change to impact previously entered accounting transactions. If you change this setting, it will not change your existing financial transactions or reports.
Top Tip: If you create accounts on an accruals basis, we'd recommend you leave auto accruals enabled, as your reports will be more accurate and you won't need to add accruals at year-end.
Can auto-accruals be enabled for invoice income, but disabled for purchase expenditure or vice versa?
The setting for auto-accruals is for both invoice income and for purchase expenditure. If you decide to disable auto-accruals, you will still be able to add manual accruals within the adjustments module.
Are all expenditure transactions auto-accrued?
If auto-accruals are enabled, then the following purchases (expenditure transactions) are auto-accrued:
- Expense Claim
- Mileage Claim
- Business Card Purchase
- Invoice to Pay
- Gift of Money
- Direct Debit
Note: Petty cash purchases and bank deposits are not auto-accrued (even if auto-accruals is enabled). Petty Cash payments are often not of material value, so there typically isn't a need to accrue for them.
Are all income transactions auto-accrued?
If auto-accruals are enabled, only invoice income is auto-accrued.
Note: Income transactions such as donations, other income and bank deposits are not auto-accrued (even if auto-accruals is enabled).
Top Tip: Record cash and cheque deposited as 'petty cash income' within the petty cash screen (instead of via the bank deposit screen). Income will then automatically be dated correctly based on the date it was given rather than banked. When the money is then paid into the bank and appears on the match transactions, you then need to reconcile it as a 'Petty Cash Deposit'.
Top Tip: Although Gift Aid claims do not auto-accrue as income, many churches and charities add 'HMRC' as a customer within the invoicing module, and each time Gift Aid is claimed, they create a customer invoice dated on the date the income is owed (e.g. last day of a month / quarter / year). This enables them to keep track of the money due in from HMRC and it means that income gets auto-accrued.
To help you better understand the Adjustments module as a whole, please visit the module overview page here.