Accruals Basis or Receipts and Payments Accounts

Category: Charities - Posted On: Jul 29 2022

Small Scottish charities, with income of up to £250,000, are permitted to prepare accounts on the receipts and payments basis. This is a simple format which can reduce compliance fees and make accounts easier to understand, a real bonus for small charities. In receipts and payments basis accounts, income and expenditure are shown in terms of cash received and spent, rather than the more formal accruals accounting process where expenses and income are shown in the accounts based on the period to which they relate rather than when they go through the bank account.

Where a charity preparing accounts on the accruals basis includes in its reserves any assets which it holds, the receipts and payments account is based solely on cash and bank movements. This means that the charity’s financial position may appear significantly worse than in reality, particularly for charities which rely on their other assets to fulfil their objectives, and can impact on their ability to obtain much-needed grant funding due to an apparently precarious situation. It is important, therefore, that the notes attached to the Receipts and Payments Account provide sufficient information to enable the reader to fully understand the charity’s financial position.

One of the big ‘selling points’ of the receipts and payments basis is that the annual independent examination, required by OSCR, does not require a qualified examiner. For a number of small charities, this is a missed opportunity to obtain professional advice on their setup and their options to maintain and expand the delivery of their charitable activities.

Over the last few years, we’ve seen an increasing number of clients experience issues due to the use of the receipts and payments basis. For example, when income goes over the £250,000 threshold, accounts must be prepared on the accruals basis and, to be able to give accurate comparisons, the prior year also needs to be prepared on the accruals basis. One-off grants for significant projects often lead to the threshold being breached and this has meant that, at times when the charity has been particularly busy, the accounts preparation process has been made far more complicated, resulting in more demands on trustees’ time and increased accountancy fees.

For charities with ambitious plans to expand and attract grant funding, we’d ask them to consider whether their needs will be better served by preparing the more formal accrual accounts before the legal requirement exists.

If you would like advice on preparing accounts, please contact a member of our EQ Charities team via or contact one of our offices.