Accounting policies

Commercial organisations categorise items according to what sort of income and expenditure it is. For example:

  • administrative expenses: payroll department, human resources, rent, rates
  • distribution expenses: running expenses of delivery vans, salesmen's commission
  • finance expenses: bank interest paid, mortgage interest, bank charges.

In a charity the expenses are categorised according to what they are for, specifically what fund they relate to. A fund will be either a restricted fund or an unrestricted fund.

Restricted funds

These are funds subject to specific trusts or conditions imposed by the donor and binding on the trustees. The conditions may be stated expressly by the donor or may be implied, as in the case of money sent in response to a special appeal.

A permanent endowment is a particular form of restricted fund. The fund must be held permanently although its assets may change from time to time.

Unrestricted or general funds

These are funds which, as the name suggests, are not subject to externally imposed restrictions. Provided that they are used in pursuance of the charities objectives, and in a way which is consistent with their charitable status, their use is at the complete discretion of the trustees. They are generally used for day-to-day operations.

A designated fund is a particular form of unrestricted fund consisting of amounts of unrestricted funds allocated or designated for specific purposes by the charity itself. 

The use of designated funds for their designated purpose will remain at the discretion of the trustees. Therefore, they should be grouped with the general or accumulated funds so that they are not confused with restricted funds

Source: NCVO 

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