Income and Expense Categories (Charities)

January – March 2018

Separation of Income and Expense Categories

Charities are required to separate certain income and expenditure streams in their accounting. While they are allowed to break down those categories in many different ones that make more sense to them, they must not be mixed up with each other.

This is causing problems for some of our clients, who do activity-based accounting. For example, a sports club may categorise income and expenditure not according to the type (donation, fees, registrations etc.) but by activity (junior event, sports day, senior team etc.). While this may make a lot more sense to them (and everyone else), this is not allowed for registered Charities.

Donation-type income, including fundraising, cannot be recorded in the same account as income from fees or advertising-type sponsorship, even if it relates to the same event.

Furthermore, all income from members must be separated out from income from all other sources. This can sometimes lead to bizarre results, so talk to us if you are unsure about this one or want to find a way to keep this meaningful.

On the expenditure side, wages and salaries must be separated out from other categories. Wages for an event organiser cannot be recorded in the same account as the venue hire for that event, for example.

Some organisations, especially churches, give cash assistance to individuals in need, or they make purchases of food or clothing on their behalf. Remember that a purchase of something for someone else is a donation in nature – it is equivalent to giving that person the cash to buy the item themselves. These transactions must be in a separate expenditure category {Donations/grants paid) and cannot be mixed up with other items under ‘mission’, ‘miscellaneous expenses’ or a similar category.