Running a charity is extremely rewarding, but it involves far more responsibilities than delivering services and raising funds.

Trustees and managers have a legal responsibility to maintain transparent financial records and bookkeeping.

UK law requires every charity, regardless of size, to keep proper accounting records that detail income, expenditure, assets, liabilities and the movement of funds.

While these duties can feel daunting, accurate bookkeeping systems can help keep your finances manageable and help you to understand your position better.

Why is charity bookkeeping important?

Charity bookkeeping goes beyond tracking income and expenses, as it involves funds that must also be recorded correctly.

If your charity’s income exceeds certain thresholds, you may need to prepare formal accounts.

For charities whose annual income is over £5,000, you must register with the Charity Commission and submit an annual trustees’ report.

As your charity grows and reaches an annual income of over £25,000, you will need to seek an independent examination or audit of your annual accounts.

For charities with a net income between £250,000 to £1 million your accounts must be examined or audited by a member approved by the Charity Commission.

If your charity is performing extremely well and has an annual income over £1 million, you must prepare accruals accounts and fill in an annual return that includes a full trustees report.

These requirements can feel overwhelming, but seeking financial support can help you understand what you need do at every stage in your charity’s growth.

Regardless of your income, good bookkeeping allows trustees to:

  • Understand the charity’s financial position
  • Know if projects are running within budget
  • Track if restricted funds are being used correctly
  • Know if reserves are managed in line with policy
  • Manage compliance with charity law
  • Provide evidence required by funders, donors and regulators

An efficient bookkeeping system can reduce the risk of errors or misuse of funds so that your year-end reporting runs smoother.

Without accurate records, charities can face difficulties with grant reporting, Gift Aid claims and regulatory scrutiny.

How is charity bookkeeping different from business accounting?

While the mechanics may appear similar to regular businesses, charity bookkeeping is different from business accounting.

This is due to:

  • Charities using fund accounting, which requires income and expenditure to be tracked by restricted, unrestricted and endowment funds rather than by profit.
  • Financial records focusing on accountability and public benefit, not commercial return or shareholder value.
  • Restricted income needing to be spent in line with donor intentions and clearly reported.
  • Many charities needing to follow the Charities Statement of Recommended Practice (SORP), which dictates how accounts are prepared and presented.
  • Gift Aid claims requiring accurate donor records and clear links between declarations and donations.
  • Trustees having personal responsibility for ensuring financial records and accurate and compliant.

These differences mean that the systems designed for businesses often need adapting for charitable use.

How to set up the right bookkeeping system?

The first step to setting up the right bookkeeping system is to choose accounting software that can support fund tracking and charity-specific reporting.

Many charities benefit from cloud-based systems that allow trustees and advisers to access real-time information.

Clear processes should be put in place for recording income, allocating costs to the correct funds and reconciling bank accounts on a regular basis.

Any supporting documents, including invoices, receipts, grant agreements and Gift Aid declarations must be retained securely and kept for at least six years from the end of the financial or tax year.

Charities should regularly review these records so that they can identify and address any risks before year end.

How can we support you?

With the right systems and financial support in place, charity bookkeeping can allow trustees to focus on delivering impact rather than worrying about compliance.

As an output from our audit and independent examination work, we provide helpful suggestions and insight to assist our charity clients get the most from their accounting systems and controls. This helps to ensure compliance with charity law and provide information to allow trustees the opportunity to maximise the impact of their charitable activities.

The financial reporting responsibilities for a charity can be daunting, but we can provide reassurance that your records stand up to scrutiny.

Get in touch with our team today for expert advice and support.