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1a) Electricity bills that hadn’t been received by the year end.
Since the electricity bill is an accrued expense this means that it has not yet been paid for. The expense in the income statement needs to be increased to show the whole cost incurred and recognise the fact that is not yet paid – a liability. It is important for the charity (RTE) to note down this as everything needs to be recorded and not forgotten. They will also need to estimate the cost of the electricity for the next year. The book-keeper will then need to debit the expense account and credit the accruals in the balance sheet including the accrued expense. For example, if they estimate the electricity for each month to be £300, debit the utilities account and credit accruals £300.
b) Depreciation charged for the year on the fixtures and fittings.
Depreciation is where an assets value drops over time and in this case fixtures and fittings tend to have a lifetime of about 5-10 years. A portion of the benefits of the fixed asset will be used or consumed in each accounting period of its life in order to generate revenue. In order to determine the expenses for a period, it is important to include an amount to represent the consumption of fixed assets during that period (which is exactly what depreciation does). It involves allocating the cost of the fixed asset (fixtures and fittings) less any residual value over its useful life. I would advise the book-keeper at RTE to use the straight line method of depreciation, where you depreciate your assets by an equal amount in each accounting period.
c) Stocks of food and drink as counted and valued by the chef and bar staff
I would say that food and beverage costs are the most important controllable expenses and are often the difference between the success and failure of a business. It is extremely hard to make any kind of informed management decision that impacts your food and beverage costs if you do not make a periodic count of your inventory. (Should be done weekly/monthly). The reason why it is so important for RTE to count stocks is because it will allow them to find out the closing inventory, work out their annual turnover which is needed in the income statement.
Regeneration Through Education Limited (RTE) is a charity whose charitable aims are to provide education courses for adults and a discounted room letting facility for community clubs in a deprive area of Portshampton. They have recently received a regeneration grant which has allowed them to plan and fund the construction of a purpose built complex of conference facilities, restaurant, and even a bar on an adjacent site.
Firstly, just like any company all charities are required to produce annual reports. However, a charity report is extremely different due to the variation of contents of the report and the role of which the report is used for. Hopefully, in this report I will be able to try and explain to the highest possible standard the rationale behind the filing requirements for a charity such as theirs and what needs to be included in it.
The Charities Act 2011 requires all registered charities to prepare a Trustees Annual Report (TAR) which provides an essential role for everyone involved in that charity and it is a legal requirement to produce this report at the end of every financial year. A charity has two options too choose from, either produce a simple or full report depending upon the charities income and assets. Any registered charity with an income below £500 is required to publish and file a simplified trustee’s annual report. If they earn an income of over £500,000 they will be then asked to publish and file a ‘FULL’ trustee’s annual report. The main difference between the two is that the full report requires a lot more depth and a lot more information about the charity including its accounts which need to be explained and listed. However, charities with an income less than £25,000 will have the option to choose either to write a simple report or not, it is not necessary unless it has been requested by the charity commission.
The reason for producing a Trustees Annual Report and Accounts is too explain what the charity is set up to do, how the charity meets its aims and to show how its money has been spent and therefore easily see their progress which will allow them to know if it is working efficiently. As well as this, analysing the accounts will provide evidence of the charities legitimacies and no discrepancies. This report also ensures that the charity is publicly accountable to its stakeholders for the stewardship of the funds it holds on trust.
Most importantly, since Regeneration through Education Limited (RTE) have an annual turnover of £2.5mn this means that I will be focusing my research and report in full.
Role of Trustees Annual Report
The purpose of preparing a Trustees Annual Report and Accounts is to discharge the charity trustee’s duty of public accountability and stewardship. The Statement of Recommended Practice (SORP) is a set of recommendations usually as regards accounting practices that help you for this purpose. However, a charity’s trustees can ponder whether providing additional information to give to donors, beneficiaries or even the general public a greater insight into the charity’s activities and achievements.
The SORP identifies the importance of this and therefore places a huge amount of weight on the Trustees Annual Report to provide an essential link between objectives; strategies, activities and the achievements that flow from them. This is why it is an essential report and requires full attention and a great amount of detail depending upon the charity’s annual turnover. Without this information the value of the accounts to the reader may be significantly diminished.
The information in the Annual Report is designed to help the general population understand what you do and how you do it and to reassure them that your charity is being managed well and efficiently. These people can literally be anyone from the public, however usually they may be donors, funders, beneficiaries, suppliers or even staff. The report adds to the transparency of the financial information provided in the annual accounts.
The information in the report helps people understand what the charity does, particularly potential funders and beneficiaries.
‘’Since all registered charities are required to prepare this report it is a key document as it sets out the charity’s achievements and activities in the year for the public benefit. It explains what the charity is trying to do and how it goes about it. Trustees can use it to explain matters that cannot be fully explained by the accounts alone. It adds to the transparency and accessibility of the financial information that the accounts provide. ‘’ However, the trustees don’t always write the report themselves, for example in larger charities delegation is often used and the writing is given to staff. They may also get help from extra volunteers who actually have experience with charity as this saves a lot of time and the information is a lot more accurate. Most importantly, the trustees need to take ownership of the report. They should also ensure that they are happy and that it gives a good account of what the charity is providing for the public and how it works. ‘’By law, trustees of all registered charities must explain in their trustees annual report how they have carried out their charity’s purposes for the public benefit. This helps people, including funders and beneficiaries, to understand what the charity does.’’
The report should help the reader understand the aims and objectives set by the charity, and the strategies and actives undertaken to achieve them.
Contents of Trustees Annual Report
The trustee’s annual report includes a wide range of different data, providing the most efficient up to date summaries of that financial year. The report should include information about the 7 main titles, which are ‘Reference and Administrative Details of the Charity, its Trustees and Advisers’, ‘Structure Governance and Management’, ‘Objectives and Activities’, ‘Achievements and Performance’, ‘Plans for Future Periods’, ‘Financial Review’, and finally ‘Funds Held as Custodian Trustee on Behalf of Others’.
As you can see below, I have listed and expanded on each section and provided a few examples of what each section requires.
Firstly, Reference and Administrative Details of the Charity, its Trustees and Advisers.
The report should deliver administrative information about the charity, its trustees and advisers. It should include; ‘the name of the charity, the charity registration number, the address of the principal office of the charity, he name of any other person who served as a charity trustee. More can be seen here: http://www.charitycommission.gov.uk/media/90634/sorp05textcolour.pdf
Secondly, Structure Governance and Management
The report should provide the population or anyone who looks the charity up with an understanding of how the charity is constituted, its organisational structure and how its trustees are appointed and trained and assist the reader to understand better how the charity’s decision making processes operate. The level of detail in the report all depends on the size and complexity of the charity itself and be proportionate to the needs of the users of the report. The report should explain, ‘The organisational structure of the charity and how decisions are made. For example, which types of decisions are taken by the charity trustees and which are delegated to staff’. More can be seen here: http://www.charitycommission.gov.uk/media/90634/sorp05textcolour.pdf
Thirdly, Objectives and Activities
The report should allow the reader and help him/her understand the main aims and objectives put through by the charity, and the strategies and activities undertaken to achieve them. As well as this, the report also may explain how the objectives set for the year set for the year relate to longer term strategies and objectives by the charity. It should provide ‘ a summary of the objects of the charity as set out in its governing document, details of significant activities) including its main programmes, projects, or services provided) that contribute to the achievement of the stated objectives’. More can be seen here: http://www.charitycommission.gov.uk/media/90634/sorp05textcolour.pdf
Fourthly, Achievements and Performance
The report should contain information that allows the reader to completely understand and assess the achievements of the charity and its minor events in the year. It should provide some data and research to show its performance against objectives that have been set and will allow them to see if they are on target. If they find out they are not, it will allow them to see where they are going wrong and see what needs improving and if so provide more training. It is likely to provide both qualitative and quantitative information that helps explain achievement and performance. It should contain, ‘A review of charitable activities undertaken that explains the performance achieved against objectives set, where material investments are held, details of the investment performance achieved against the investment objectives set’. More can be seen here: http://www.charitycommission.gov.uk/media/90634/sorp05textcolour.pdf
Fifthly, Plans for Future Periods
The report should explain the charity’s plans for future development including their aims and what can be done to improve the charity. More can be seen here: http://www.charitycommission.gov.uk/media/90634/sorp05textcolour.pdf
Sixthly, Financial Review
The report should provide the most recent up to date review of the financial position of the charity and a statement of the principal financial management policies adopted in the year. It should explain ‘where material investments are held, where any fund is materially in deficit, the circumstances giving rise to the deficit and details of the steps being taken to eliminate the deficit’. More can be seen here: http://www.charitycommission.gov.uk/media/90634/sorp05textcolour.pdf
Finally, Funds Held as Custodian Trustee on Behalf of Others
‘Where a charity is, or its trustees are, acting as custodian trustees, the following matters should be disclosed in the report: A description of the assets which they hold in this capacity, the name and objects of the charity (or charities) on whose behalf the assets are held and how this activity falls within their own objects, details of the arrangements for safe custody and segregation of such assets from the charity’s own assets’. More can be seen here: http://www.charitycommission.gov.uk/media/90634/sorp05textcolour.pdf
To conclude, as you can see from this report I have provided about the Trustees Annual Report there is a huge range of data that needs to be addressed and collected and submitted to the charity commission’s government site. First of all, since RTE have an annual turnover of £2.5mn this means that they will need to focus on the FULL report when publishing and filing their annual financial statements to ensure transparency of their financial affairs and when submitting the report.
There are a number of key differences between charity reporting requirements and company reporting requirements and hopefully in the next few paragraphs I will be able to explain the main differences.
First of all, every company must deliver documents every year to Companies House which is a site put up by the government in the United Kingdom. If the company does not comply, there could be serious consequences as The Registrar may assume that the company has stopped and is no longer carrying on business or in operation and take steps to strike it from the register. If the Registrar strikes a company off the register, it is no longer existing and its assets become Crown property. The Companies House main functions are to ‘incorporate and incorporate and dissolve limited companies; examine and store company information delivered under the Companies Act and related legislation; and make this information available to the public’.
However, on the other hand the Charities Act 2011 requires that all charities need to prepare a Trustees Annual Report (TAR) which provides an essential role for everyone involved in that charity and it is a legal requirement to produce this report at the end of every financial year.
The main difference between the two documents is that companies require filling out an annual return whereas charities are required to submit a Trustees Annual Report.
An annual return is a snapshot of a company’s information at the time which is correct, it is a separate document from a company’s annual accounts. It must contain the following information:
- the name of the company
- its registered number
- the date to which the annual return is made-up (the made-up date)
- the principal business activities of the company
- the type of company it is, for example, private or public
- the registered office address of the company
- the address (single alternate inspection location - SAIL) where the company keeps certain company records if not at the registered office, and those records held there
- the details of the company secretary (corporate or individual), where applicable
- the details of all the company's directors (corporate or individual)
In a way this is fairly similar to the Trustees Annual Report which charities have to submit.