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Helping Your Charity Blossom. Virtual FD, Accounting & Bookkeeping Services
Helpful Glossary
What are accounts? Well they are a way of presenting how your organisation is performing in terms of its financial results .
An income statement relates to a specific period of time - for example a month or a year - and shows whether you are making a surplus or loss for that specific period. Typically this will showl show your income, your costs, your surplus or loss.
A balance sheet shows your financial position at a point in time (rather than for a period of time like the income statement). So it will show what assets you have (for example equipment, money owed to you) and what liabilities you have (for example money you owe to suppliers, loans you have) at a specific date (e.g your month or year end).
What are management accounts? Unlike statutory accounts which have to be filed with Companies House and the Charities Commission in a specific format, management accounts can be in any format you wish to suit your specific organisation.
They can be produced monthly or quarterly. Typically they would include an income statement and balance sheet, but may also include comparison of actual performance to budget or forecast with detailed analysis of reasons why the organisation has done better or worse than expected. They may include a comparison of how you have performed against previous year results. The accounts could include results for the month, the quarter and the year to date.
You may decide you're more of a visual person and would like the results shown in pie charts or graphs rather than tables of numbers.
You may decide that trends are important.
Management accounts are yours and can be tailored to meet your requirements.
These are a set of financial reports (sometimes called financial statements) produced annually and they have to be filed with Companies House if you are a limited company and the Charity Commission. They all include a balance sheet and income statement and some further information in the notes to the accounts. These accounts are publicly available on the Companies House and Charity Commission website to anyone, but they don't include every last detail of your income and expenditure. They are produced in line with the charity SORP (statement of recommended practice).
There are a number of ways of describing profit which can sometimes get a bit confusing. Gross profit is calculated by deducting direct costs (cost of sales) from income. What are direct costs? Well, these are costs which you only incur in order to make sales. If you stopped selling you wouldn't incur these costs. So for example, you may incur costs to deliver your product to suppliers. If you didn't make any sales, you wouldn't incur any delivery costs. These costs are variable.
So you have your gross profit - what next. You may incur a number of other costs such as rent, rates, IT support costs ,and so on. These costs are incurred regardless of the number of sales you make. So if you made zero sales in a month, you would still have to pay your office rent for example. These costs are usually fixed for a year and can also be described as indirect costs or overheads. If you deduct these from your gross profit, you end up with your net profit.