The system supports charities, churches and not-for-profit entities that are subject to the Charities SORP 'Statement of Recommended Practice 2015'. This includes Funds handling and compliant Statement of Financial Activities SOFA 2015, FRS102 version reports.
Fund Accounting is an essential and required feature of charity accounting. Fund accounting distinguishes between two primary classes of fund: those that are unrestricted in their use and can be spent on any charitable purposes of the charity, and those that are restricted in use and can only be used for a specific charitable purpose. Proper accounting for funds is therefore essential to ensure that the Trustees do not act in breach of trust.
A fund represents financial resources held and maintained separately from other financial resources because of the circumstances in which those resources were received or the restrictions imposed on them when received.
In more detail, any Fund is classified as either: -
Unrestricted funds are spent or applied at the discretion of the trustees to further any of the charity's purposes. Unrestricted funds may be used to supplement expenditure made from restricted funds.
Trustees may choose to Designate or set aside a part of the unrestricted funds to be used for a particular future project or commitment
Funds held on specific trusts under charity law are Restricted funds. The specific trusts may be declared by the donor when making the gift or may result from the terms of an appeal for funds.The specific trusts establish the purpose for which a charity can lawfully use the restricted funds. A charity may have several individual restricted funds, each for a particular purpose of the charity.
Trustees must be very careful to abide by the terms of any restricted trust and fund accounting is designed to demonstrate that stewardship and diligence.
Permanent endowment funds exist where there is a capital fund with no power to convert the capital into income. These funds must generally be held indefinitely.
Expendable endowments are those funds which, at the discretion of the trustees, may be applied as income although there is no requirement to do so which is the important difference between other types of funds.
The law around endowments is complicated and users are advised to take appropriate professional advice.
The accounting for funds is reported on a Statement of Financial Activity (SOFA) either on an Receipts and Payments basis for smaller charities or on an Income and Expenses basis for larger charities or those that use accrual accounting.
As any income or expenditure transaction is entered the system allows the user to allocate it to a particlar fund. Each fund can be reported upon.